How to Handle Large Payments of Disability Back Benefits
There are strict rules on how a representative payee may spend backpay for a recipient of SSI disability.
Getting approved for Social Security disability benefits can take a long time—sometimes up to two years. When this happens, the disability recipient will be entitled to large back payments of disability benefits. If you are a representative payee, there are some important things to keep in mind when faced with handling large back payments on behalf of a disability recipient (called a "beneficiary").
The first thing that you must do with a back payment is to make sure that the beneficiary’s current needs are met. Current needs are anything the beneficiary needs right away, such as:
- security deposit
- utilities (heat and water)
- basic home furnishings, and
Remember that the beneficiary’s money must be used for his or her benefit only. If there is money left over after spending it on the above current needs, you must use the disability benefits to meet his or her continuing basic needs, medical care, or improving the beneficiary's living conditions.
Improving Living Conditions
If, once the beneficiary’s current needs are met, there are funds left over, you can use this to help make the beneficiary’s living conditions better. For example, you can use the money to pay for:
- better medical care
- insurance premiums
- physical or occupational therapy
- a motorized wheelchair (if not covered by health insurance)
- reconstructive dental care (if not covered by health insurance)
- hearing aids (if not covered by health insurance)
- modifications to a vehicle to accommodate the beneficiary’s disability (i.e. hand controls)
- special education or other training programs
- visits to the beauty salon
- grocery delivery
- entertainment (movies, magazine subscriptions, travel, dining), and
- in-home assistance (for example, housekeeping).
Lack of insurance coverage. If the beneficiary has major health-related costs that are not covered by his or her insurance, you can use the back pay to cover these expenses.
In some cases, there may be enough money left over to make significant major purchases that would greatly improve the beneficiary’s life. Here are some examples.
Home. You can use the funds to make a down payment on the purchase of a home for the beneficiary or to pay his or her mortgage.
Home repair. If the beneficiary already owns a home, you can use the money to make repairs and to improve the beneficiary’s access to and enjoyment of the home. Examples of these kinds of improvements are:
- adding a wheelchair ramp
- widening doorways
- installing lower countertops
- creating a bathroom that accommodates the beneficiary’s disability (for example, special tubs or shower units), and
- installing a home security or alert system.
Home furnishings. Back payments can be used to buy furnishings (for example, a television) for the beneficiary’s home, even if the beneficiary lives in a home with other people.
Automobile. Back payments can be used as a down payment on a car or to make monthly payments on a car. However, the car must be used by, and owned by, the beneficiary. If the beneficiary already owns a car, the money can be used to make any necessary repairs to the vehicle.
If you have questions about what special purchases the funds can, and cannot, be spent on, call the Social Security Administration at 800-772-1213.
Maintaining SSI Eligibility
Supplemental Security income is a need-based benefit for disabled people with little or no work history and few assets. If you are a payee for an SSI recipient, you must be particularly careful as to how back payments are spent. This is because if an SSI recipient has more than $2,000 in countable assets (for couples, this amount is $3,000), he or she will no longer be eligible for SSI. Certain items you purchase could have values that make the beneficiary lose his or her payments. If too much money from the back payment is left in a bank account, this may also result in the beneficiary losing his or her eligibility for benefits. For information on which assets do not count toward the SSI asset limit (primarily the beneficiary's house and car), see our article on SSI asset limits.
Blind or Disabled Children on SSI
Backpay benefits for disabled or blind children who receive SSI must be handled differently than those of adult recipients.
Lump-sum back payments for blind or disabled children must generally be deposited into a “dedicated account.” A dedicated SSI account is one that is used only for the child’s benefit payments and to pay specific expenses related to the child’s disability.
A dedicated account must be kept separate from any other savings or checking accounts; this includes savings accounts that have been established for the child and the parents’ or payee’s banking accounts.
Maintaining Eligibility for SSI
Unlike adult recipients, the SSA will not count the funds in the child’s dedicated account as a resource toward SSI eligibility. This means that even if the account holds a large amount of money, it cannot be used to disqualify the child for benefits. The SSA will also not count any interest that is earned on the dedicated account to determine the child's eligibility.
The SSA has strict guidelines that dictate how the money in a child’s dedicated account must be spent. These funds can only be used to pay for:
- medical treatment (that is not covered by insurance)
- job training
- personal needs assistance, and
- other appropriate items or services related directly to the child’s disability.
Personal needs assistance. Personal needs assistance is any help that is required that relates directly to the child’s disability. Here are some examples:
- a motorized wheelchair (or other special equipment)
- a wheel chair ramp in the child’s home
- vehicle modifications needed to transport the child,
- therapy, and
Other appropriate items or services. The SSA does not directly define what items or services are “appropriate”; however, it does give the example of any attorney’s fees paid in order to win the child’s claim for disability. Be sure to contact the SSA if you are unsure whether an expense is an "appropriate item or service."
If you use money from the child’s dedicated account in ways other than those outlined above, the money must be repaid to the SSA from your own financial resources.
If money remains from the disability backpay after the above expenses are paid, the money must be saved. Although the SSA does not dictate how the money should be saved, it recommends that the funds be placed in a state or federally insured interest-bearing bank account or be used to purchase U.S. Savings Bonds.
Keep in mind that an individual SSI recipient cannot have more than $2,000 in assets or the recipient may no longer be eligible for SSI. In order to protect an otherwise eligible individual from losing benefits, the SSA gives payees nine months to spend any back payment funds.
Representative payees are required to file a report with the SSA once a year that details how a beneficiary’s money was spent. The SSA may, however, ask to look at the records more than once a year. If you misuse benefits you can face criminal charges punishable by fines and incarceration. For more information, see our article on representative payee accounting.