Social Security -- Disability Law

Entrepreneurship and Starting a Business on Disability Income

Many people receive disability benefits because they cannot get jobs that accommodate their physical disabilities. People receiving disability benefits like Social Security Disability Insurance (SSDI) who still want to work may have to start their own businesses to be able to engage in gainful employment.

However, starting a business while on disability has additional complications, including limited income and the possible loss of your disability status. If you have questions about disability benefits and whether you might lose them by starting a successful business, contact a Social Security disability lawyer for legal advice.

Social Security Disability Eligibility

SSDI benefits provide supplemental income to people who are unable to find work because of a disability. In addition, Supplemental Security Income (SSI) pays benefits to disabled adults and children with limited income. When someone becomes disabled, they can apply to the Social Security Administration (SSA) for these benefits.

To qualify for disability benefits, you need enough work credits to qualify. Essentially, to qualify for SSDI benefits, you already must have a history of working and paying Social Security taxes. Younger workers can qualify for disability with fewer credits.

To receive Social Security disability benefits, you:

  • Cannot do work that you did before because of your condition
  • Cannot adjust to other work because of your condition
  • Have a disability that has or will keep you out of work for at least one year

Self-Employment and Disability Benefits

People with disabilities are often at an economic disadvantage in the U.S. About 25% of people with disabilities are living in poverty. Disability benefits help, but they are often not enough to cover basic living expenses. Self-employment could help many people with disabilities become more self-reliant. However, starting a business is worrying because it could mean losing benefits.

There are income caps for people on SSDI and SSI benefits, but that should not prevent you from starting your own business. The amount of income considered "substantial gainful activity" changes every year. In 2021, that means you cannot earn more than $1,310 per month ($2,190 per month for the blind). There are a few tests the SSA will use to determine whether your self-employment income qualifies as substantial gainful activity, including:

  • Significant services and substantial income test
  • Compatibility test
  • Worth of work test
  • Countable income test

Significant Services and Substantial Income Test

The SSA uses this test first. If you are a one-person business, the services are considered necessarily significant. If you have more than one employee or co-owner, your services will be considered significant if you contribute more than half of the total time to managing the business or you manage the business for more than 45 hours per month.

Income from your job is substantial if it exceeds the minimum income allowed ($1,310 per month in 2021). If you make more than the minimum, you may lose your disability benefits. Your income may also be considered substantial if the work you do is similar to the work you did before going on disability benefits or similar to the work a self-employed business owner in a similar business as yours would do.

It is important to determine if the income qualifies as "earned income" or “unearned income." Unearned income generally doesn't count toward income limits. This includes Social Security benefits, pensions, state disability payments, unemployment benefits, interest income, dividends, and cash from friends and relatives.

The Comparability Test and Worth of Work Test

If your work and income do not qualify under the significant services and substantial income test, Social Security may perform the comparability and worth of work tests. The comparability test compares your business to people in the community who make their livelihood from the same or similar kind of business. The test will look at hours, skills, energy output, efficiency, duties, and responsibilities.

Worth of work evaluates the "value" of the work. If the value exceeds the minimum income limit or worth more than the limit compared to what it would cost another employee, your work may be considered substantial gainful activity.

The Countable Income Test

After receiving benefits for 24 months, the SSA may use the countable income test. If your monthly countable income averages more than the allowable amount for the months you worked, the SSA may determine that you engaged in substantial gainful activity.

The Trial Work Period TWP and Extended Period of Eligibility (EPE)

If you start a business, you will most likely not immediately lose your benefits. There is a trial work period to test your ability to work while still qualifying as disabled. A trial work period lasts at least nine months during a rolling 60-month period. Any month where your earnings exceed the limit ($940 per month in 2021) counts as a month of services for the trial work period.

The Extended Period of Eligibility (EPE) begins the month after the trial period ends. During the first 36 months of the EPE, you will still receive benefits for each month that your earnings fell below the substantial gainful activity level.

Employment Support For Entrepreneurs on SSDI

One of the opportunities for people on SSDI is the Ticket to Work Program. This program supports career development for people ages 18 through 64 who receive disability income. This includes support for starting your own business. Work incentives also allow you to deduct business expenses from countable income.

The Plan to Achieve Self-Support (PASS) helps people obtain the items and services needed to start a business. This can help you set aside money to pay for these qualifying expenses without the funds affecting your disability benefits.

Contacting a local Social Security disability lawyer near you can be a crucial step in planning, launching, and growing your own business. Find an experienced attorney who can help make sure you properly calculate your income so you don't lose access to your benefits.