Owning even a very small business can affect your eligibility for Social Security disability insurance benefits (SSDI). If the Social Security Administration (SSA) decides that the work you put into your business is "substantial gainful activity," you could lose your benefits—or you won't qualify for benefits in the first place. Running a business includes any kind of self-employment, including:
For employees, the substantial gainful activity (SGA) limit is $1,350 per month in 2022. But if you're self-employed, the SSA looks beyond the dollar amount that you earn. The SSA will use either the "countable income test" or the "three tests" to determine whether your work is considered substantial gainful activity. The test the SSA uses depends on when you start your business and why your work is being reviewed. (Note that Social Security doesn't use these self-employment tests for blind SSDI recipients; the $2,190 blind SGA limit is used for blind recipients who own a business.)
Determining if your self-employment activity will fail these tests takes some patience; the rules are fairly complicated.
If you've received Social Security disability benefits for more than 24 months and you begin to run a small business or do freelance work, the SSA will use your "countable income" to see if the work you do for your small business should be considered SGA. If Social Security finds that your contribution to the business is SGA, it will find that you're no longer disabled.
Here's the rule for the countable income test: If your countable income is more than $1,350 a month (in 2022), your self-employment will be considered SGA and you will no longer be eligible for benefits, unless you can show you are not providing significant services to your business. In other words, if you are providing "insignificant" services, you can make over the SGA amount.
Countable business income is that portion of your salary or profits that you earn from your business based on your own productivity. To determine your countable business income, the SSA will deduct the following from your net earnings:
The SSA defines significant services differently based on the type of business you own.
One-person businesses. If you are the only person who works for your business, your services are automatically considered to be significant. Without your work, the business would not exist.
Businesses with more than one person working for them. If you own a business and have one or more employees, or you co-own a business with someone else, your services are significant if:
Or, looking at it a different way, your services are insignificant if you provide less than 45 hours per month of management services and provide less than half of the total time needed to manage the business. In that case, you can make more than the SGA amount.
Farm landlords. If you're a farm landlord, your services are significant if you materially participate in the production or management of crops or livestock. In that case, you must make less than the SGA amount.
When you first apply for SSDI, or if you've been receiving SSDI benefits for less than 24 months, the SSA will use what it calls the "three tests" to determine whether your self-employment work is SGA.
The three tests are:
If any one of these tests shows that the work you do for your small business is SGA, you will be ineligible for benefits.
There's one more situation where the SSA will use the three tests. If you lose benefits due to doing SGA, but you're still in your re-entitlement period, the SSA will also use the three tests to see if your benefits should be restarted. (For more information, see "Self-Employment and the Trial Work Period," below.)
Let's look at the first test.
The SSA will consider your work to be SGA if you provide significant services to your business (as discussed above) and you receive substantial income from your business. Here, the way Social Security considers whether your income is "substantial" is more complicated than simply checking if your countable income is above the SGA amount.
Substantial income. The income from your business is substantial if:
Because your income from your small business is likely to fluctuate, the SSA will use your average income (based on a set period of time and divided by the number of months in that time period).
Two other factors. Unlike with the countable income test above, even if your countable income is less than $1,350 a month, the SSA can still find that your work is SGA if:
Why this test's standards are more difficult. Why aren't you allowed to make more than $1,350 under this test, but you are allowed to make more than $1,350 under the countable income test? Remember, all of the "three tests" tests, including the significant services and substantial income test, are for new claimants or recipients. Social Security wants to make it more difficult for those who have been receiving disability for less than two years to own a business and receive disability benefits.
If Social Security finds you aren't performing SGA under the "significant services and substantial income test, the agency will then consider whether your work is SGA under the "comparability test" and the "worth of work test."
If the work activity you do in your small business is comparable to the work done by an unimpaired person who has the same kind of business in your community, Social Security will consider your work to be SGA (regardless of how much you make from the business). Here are the factors used to make the comparison:
This comparability test is different from the substantial income test, above, in that the substantial income test compares the livelihood you make from the business against the livelihood of self-employed members of your community. This comparability test compares your work activity with the work activity of self-employed members of your community.
Even if your work activity isn't comparable to that of individuals in your community, Social Security will consider the work you do for your small business to be SGA if what you do for the business:
If you can pass all three of these tests, the SSA won't consider your work as SGA.
Although it's possible to start a business or start working for yourself while receiving disability, it can result in serious consequences if the SSA decides that your work is SGA and stops your benefits. It may be helpful to talk to an experienced disability attorney to discuss how running even a small business or doing a little freelance work can impact your benefits.
If Social Security has already terminated your benefits due to your self-employment activity, you may want to hire a Social Security disability attorney. To find an attorney in your area who's willing to help, fill out our disability attorney consultation form.
Read on to find out about how self-employed people are allowed to work during a nine-month trial work period without losing any benefits.
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Updated January 31, 2022