Why Do I Have to Spend My SSI Disability Backpay Rather Than Saving It?

If you were granted disability benefits through the SSI (Supplemental Security Income) program, the Social Security Administration (SSA) will pay you benefits dating back to the month after you applied for SSI. How quickly you spend this "back pay" can affect your continued eligibility for the SSI program.

Here's what you need to know about the rules for spending your SSI back pay, including how hanging on to it too long can affect your eligibility for benefits.

How Does SSI Back Pay Work?

Because disability decisions can take so long, Social Security will probably owe you back payments of benefits for anywhere from three months to fifteen months or more. But your back pay won't go back further than your application date.

In contrast, SSDI (Social Security disability insurance) benefits can actually go back "retroactively" to a year before your application date if you were disabled for that long. And Social Security pays SSDI back pay in a single lump sum.

But the SSA will pay you only three months of SSI at once in your first back payment. If you're owed more back pay than that, Social Security will usually pay you in two or three installments, six months apart, unless you can prove you need the money immediately for necessities. (Learn more about SSI lump-sum installments.)

What Happens If I Don't Use My SSI Back Pay?

Historically, you had to spend any SSI back pay you got rather than keep it or risk your continued eligibility for the low-income program. That's because the value of your countable assets (cash and belongings) must stay under the SSI asset limit for you to remain eligible for benefits—currently $2,000 (for an individual). Note that things like your car, your house, and your personal belongings don't count.

Luckily, the SSI program makes an exception for lump sums of disability backpay. The rule is actually that you have nine months to spend your SSI back pay. (If you receive more than one lump-sum installment, you have nine months to spend the money each time you receive an installment.)

What Can You Use SSI Backpay On?

So, what should you do with your lump sum of SSI disability backpay benefits? First, you can pay for current expenses, such as:

• pay rent or pay down your mortgage
• put down a security deposit on a rental
• repair or retrofit your house or apartment
• pay off debts
• stock up on food staples, and
• pay for health insurance premiums and other medical expenses.

Second, you can purchase any of the following assets, which won't count toward your SSI asset limit:

• a primary car or truck
• clothing, furniture, a computer, and other household goods
• a house, apartment, or mobile home
• tools for a business you want to start
• life insurance (up to $1,500 cash surrender value), and
• burial spaces, contracts, and $1,500 in burial funds put into a separate account.

These items are called "excluded resources" and they don't count as assets. (20 C.F.R. § 1210.)

Most other assets you might purchase would count toward the SSI asset limit. If you were to buy, say, a boat, it would be counted as an asset toward the SSI limit, so it wouldn't help you spend down the lump sum within nine months.

Documenting How You Spend Your Back Pay

Make sure you keep receipts so you can show Social Security how you spent some or all of your lump-sum payment. If the lump sum of back payments, or most of it, is gone from your bank account after nine months, Social Security might require documentation to show where the money went.

Social Security does this to make sure you aren't "over-resource," meaning that don't have more than $2,000 in assets. And the agency knows that some people may take the back pay out of their bank account and keep it at home or give it to family members for safekeeping. (Note that giving money away can make you ineligible for SSI for several months because of the transfer penalty.)

What Are the Rules for Saving SSI Back Pay?

If you were disabled before you turned 26, you can put your backpay into an ABLE account, a special type of account created by the Achieving a Better Life Experience Act, a federal law. The money you keep in an ABLE account doesn't count as assets or resources for SSI disability benefits or Medicaid. (Learn more about ABLE accounts.)

You can also put some of your SSI back pay into savings for a Program to Achieve Self-Support (PASS) to help you return to work. For instance, you could save some of your SSI back pay for school or technical training, and that savings won't count as a resource.

And finally, some SSI recipients put money into a trust to maintain SSI and Medicaid eligibility. The trust money is available for the SSI recipient to spend on living and medical expenses, within limits. Learn more about using a pooled trust when you have too many assets and using a self-settled special needs trust.

You'd probably need a lawyer's help to put your money into a trust, so most people use ABLE accounts to keep some savings—if they were disabled before age 26.

_{Updated December 28, 2022}