Can I Start a Small Business on SSDI?

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 at the level of "substantial gainful activity," you could lose your benefits—or you won't qualify for benefits in the first place (but self-employed people can be eligible for benefits).

Running a business includes any kind of self-employment, including:

• providing services, like a bookkeeper, carpenter, gardener, or handyman
• doing contract or consulting work (freelancing)
• farming or ranching
• writing or blogging, and
• being a landlord.

For employees, the substantial gainful activity (SGA) limit is $1,470 per month in 2023. 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. Determining whether your self-employment activity will fail these tests takes some patience; the rules are fairly complicated.

(Note: Social Security doesn't use these self-employment tests for blind SSDI recipients. For blind self-employed recipients, the SSA uses the actual $2,460 blind SGA income limit.)

The Countable Income Test

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, the agency will find that you're no longer disabled.

Here's the rule for the countable income test: If your countable income is more than $1,470 a month (in 2023), 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're providing "insignificant" services to the business, you can make over the SGA amount.

What Is Countable Business Income?

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 value of any significant amount of unpaid help given to you by your spouse, children, or other people
• impairment-related work expenses (IRWEs)
• "unincurred" business expenses paid for you by someone else or by an agency, and
• for farms only: soil bank payments (if counted as farm income).

What Are Significant Services?

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:

• you provide more than half the total time needed to manage the business, or
• you provide more than 45 hours per month of management services, regardless of how many hours of management time the company needs.

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.

The Three Tests

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:

• the "significant services and substantial income test"
• the "comparability test," and
• the "worth of work test."

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 on the re-entitlement period and the three tests, see our article on Self-Employment and the Trial Work Period.)

Let's look at the first test.

Significant Services and Substantial Income 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:

• your countable income (as calculated above) averages more than $1,470 a month (for 2023), or
• your countable income averages less than $1,470 a month but the livelihood you get from your business is:
  • comparable to what it was before you became disabled, or
  • comparable to the livelihood of self-employed people in your community who are not disabled and who run the same kind of business you do.

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 $1,470 a month, the SSA can still find that your work is SGA if:

• you earn about as much as you did before becoming disabled (and your business was your sole means of income before you became disabled), or
• your business income is the same as the income of other, unimpaired people in your community who do the same kind of work.

Why this test's standards are more difficult to meet. Why aren't you allowed to make more than $1,470 under this test, but you're allowed to make more than $1,470 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."

Comparability Test

If the work activity you do in your small business is comparable to the work done by a person without impairments 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:

• the hours you work
• your energy output
• your efficiency
• your skills
• your duties, and
• your responsibilities.

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.

Worth of Work Test

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:

• is clearly worth more than $1,470 a month in terms of its value to the business, or
• is clearly worth more than $1,470 a month when compared to what it would cost you to pay someone else to perform your duties.

If you can pass all three of the three tests, the SSA won't consider your work as SGA.

Does Starting a Business Risk Losing Benefits?