How to report self employment income to social security disability

Can you own or run a small business and collect Social Security disability benefits?

If you've paid self-employment taxes (SECA) for many years, you'll be eligible for Social Security disability insurance (SSDI) just as if you worked for an employer who pays FICA taxes on your behalf. But if you still own a business or do some type of work, Social Security will not grant you disability benefits if it considers you to be doing "substantial gainful activity" (SGA).

For wage earners, Social Security uses an earnings cutoff amount, which is $1,310 in 2021, to determine whether you're doing SGA. (SGA for wage earners is discussed in detail in the first half of this article.) But for the self-employed, Social Security knows that income is not necessarily a good measure of how much you are working. Self-employment includes freelance work, contract work, or any other work you do for a business you own.

Instead, if you are self-employed, Social Security will assess whether your work is substantial gainful activity by using either the "Countable Income Test" or the "Three Tests." Which test Social Security uses depends on whether your initial application is being evaluated or Social Security is reviewing your work activity after you've been receiving benefits.

The Three Tests

If you are applying for Social Security Disability Income (SSDI) or SSI, or if you have been on SSDI disability for less than 24 months, Social Security will use one of the following three tests to evaluate whether your self-employment work is substantial gainful activity. The first test Social Security will use is the "Significant Services and Income" test. If this test doesn't show that your self-employment is SGA, Social Security will use the "Comparability" and "Worth of Work" tests. If Social Security finds your self-employment is SGA, you will be denied disability benefits.

Note that after you are approved for SSI, you can earn over the substantial gainful activity limit and not have your benefits terminated. The test used for ongoing SSI recipients is the SSI income test.

The Significant Services and Substantial Income Test

If you provide significant services to your business and you earn substantial income from it, you are engaging in SGA. Whether or not your services are significant depends on what kind of business you have.

Significant Services

If you are the sole owner or worker in your business, your services are automatically considered significant. If this is your situation and your income from the business is more than $1,310 per month, you are doing SGA and you will not be considered for disability benefits.

If you have employees or co-owners, Social Security will conclude that your services are significant if you either contribute more than half of the total time needed to manage the business each month or you manage the company for 46 hours or more a month.

If you rent your land to someone else but you manage or help produce the farm's crops or livestock, your services will be considered significant if your participation is "material."

Substantial Income

In considering the income you make, Social Security will subtract some items from your business revenue. If you get unpaid help (for instance, from family members); receive free rent, equipment, or other items (for instance, from a rehabilitation agency); or you have to pay disability-related expenses so you can work (for instance, taking a taxi to work), Social Security will subtract the value of these items from your income before considering whether it's substantial. The result is called your countable income.

Income from self-employment is considered "substantial" if your average income is more than $1,310 a month. Even if your income is lessthan $1,310 a month, it can still be considered substantial if the income you earn from your self-employment:

• is similar to what you earned before your disability began, or
• is similar to what non-disabled people in your community make, when they are self-employed in the same kind of business as you.

Social Security will use your average income in these tests because earnings from self-employment generally change from month to month.

The Comparability Test

If you're not doing significant services or making substantial income, Social Security will perform the next two tests. The comparability test compares the work you do with that of an unimpaired person in your community whose business is similar to yours. If Social Security determines that the work is comparable, then your work is SGA regardless of your earnings. Social Security looks at the following factors for this test:

• job duties
• job skills used
• work efficiency
• time worked, and
• energy spent working.

This test only compares work activity and not the value of the work performed.

Worth of Work Test

The worth of work test measures the value of what you do for your business. Your work is SGA if the value of what you do is clearly:

• worth more than $1,310 a month, or
• worth more than $1,310 a month compared to what it would cost you to hire an employee to do your job.

The Countable Income Test

Social Security will use the "Countable Income Test" to see if your work is SGA if you start your own business or begin to do contract or freelance work more than 24 months after you began receiving benefits.

First Social Security comes up with your countable income, as discussed above in the Three Tests. If your countable income is less than $1,310 a month, your benefits will not be terminated, no matter how much you are working.

If your countable income is more than $1,310 per month, your benefits will cease unless you can prove that you didn't provide significant services to your business during that month. Whether you are doing significant services for your business is determined as discussed above in the Three Tests.

If you can show that your services are not significant, your benefits won't be terminated, no matter how much money you make. Social Security cannot compare your work to what you used to do, to what business people in your community do, or judge what your work is actually worth (the comparability test or the worth of work test).

The Trial Work Period

Working for yourself at the SGA level won't terminate your disability benefits right away. You have nine months in which you can make over $940, or even over the SGA amount, and not have your Social Security disability benefits reduced at all. Of course, you must let Social Security know whether you are no longer disabled during this time – if so, your benefits will be terminated. For more information, see Nolo's article on the trial work period for disability recipients.

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