Owning a business is a dream for many but the question of starting a business while on disability brings much uncertainty.  While there is a general belief that disability benefits will be eliminated upon starting a business, that is not always the case.

Fortunately, the rules for starting a business while collecting Social Security Disability Insurance (SSDI) encourage people with disabilities receiving benefits to become self-sufficient.  The Social Security Administration (SSA) allows recipients to test their ability to work or start a small business. The SSA has rules in place to allow people to continue receiving benefits should the business not be successful. These rules called work incentive rules, encourage recipients to become self-sufficient without fear of losing benefits.

Trial Work Period

The Trial Work Period (TWP) allows someone receiving disability benefits to test their ability to either work or start a business.  Under these rules, money can be earned 9 months over a rolling 60 month period without losing benefits.

During the TWP, recipients can earn any amount of self-employment earnings and the SSA will still send the full SSDI payment.  Each month counts separately and they do not have to be consecutive. Any month the recipient earns more than the Trial Work Level (TWL) during the rolling 60 month period counts toward the TWP.

Any month during where someone works over 80 hours or has net earnings from self-employment over $850 counts toward the TWP in 2018.

At the end of the 9 month Trial Work Period, the SSA looks at how much was earned.  If the recipient earned more than $1,090 (2018) in income or Substantial Gainful Activity (SGA) in each of the 9 months, the SSA considered the recipient able to support themselves and stop benefits.  If they did not earn more than the $1,090 each of the 9 months, the SSA will send then the entire amount of benefits provided they didn’t earn more than $1,090 in a single month.

This means if the business fails or the recipient’s condition causes them to not be able to run the business, SSDI benefits can be reinstated within five years.  There is no need to file a new application or wait for the benefits to restart either.

This can be a bit complicated, but the SSA has a program called PASS which is the Plan for Achieving Self Support. This program is available to help people find a way to become self-sufficient. While often thought of as a way to enter the workforce, they also help people who want to start a business.

Substantial Gainful Activity (SGA)

Because someone has a business, especially a business start-up, the number of hours put into it does not necessarily correlate with the self-employment income received.  It’s not uncommon to not show a profit in the first few years of a business, if ever. Because of this, the Social Security Administration will look at the amount and type of work being done.  If it is beyond what the disability guidelines allow. If the SSA considers the reasonable value of the recipient’s work is more than their benefit amount, benefits can be suspended or terminated.  

As a result, the SSA has tests to determine if the work the recipient is doing is considered Substantial Gainful Activity (SGA).  For self-employed individuals, the SSA will use three tests to determine whether this work is considered a SGA.

The three tests include:

• Significant services and substantial income test
• Comparability test
• Worth of work test

If any of these tests consider the work done in the business as SGA, the recipient will lose their benefits.

Significant Services and Substantial Income Test

The SSA will consider work to be a Substantial Gainful Activity if the recipient receives a substantial amount of income from their business.  Substantial income is considered an amount over $1,180 monthly in 2018 or comparable to what the recipient earned before becoming disabled. Because business earnings vary from month to month, the SSA will use an average of the earnings over a period of time.

Comparability Test

This test compares the recipient’s work activity with that of an unimpaired person in the local community performing the same work.  If the work is similar, the Social Security Administration will consider this work to be SGA regardless of earnings.

A few factors that are considered include:

• Hours worked
• Energy and difficulty to do the work
• Efficiency in being able to do the work
• Skills of the recipient

Worth of Work Test

Even if the work activity isn’t considered comparable, the SSA will consider the work as a Substantial Gainful Activity if the apparent value of the work is worth more than $1,180 a month (2018) or if it would cost more than $1,180 to hire someone to perform the same tasks.

Resources

The evaluation guidelines are too complex to summarize here, but more information is available from the Social Security’s operations manual. For a summary of working while receiving disability benefits, refer to this Social Security publication.

Other Questions about Self-Employment and Social Security Disability Insurance

There are a lot of questions about whether can you own a business while on disability.  Here are a few common ones.

Please note all of this is general advice and I am not an expert in this subject. There is a lot to lose if this is done incorrectly, so if you have questions about this contact an attorney in your area.  A qualified Social Security Attorney can assist in better understanding the rules and regulations around returning to work, owning a business, and SGA.

The laws around income and disability benefits are very complicated and difficult to understand. Even unknowingly violating the code of federal regulations could cause benefits to be terminated.