The Social Security Administration (SSA) can take a long time to approve disability benefits—sometimes up to two years. If you have to wait very long for a disability decision, you'll be entitled to a large back payment of past-due disability benefits.
Social Security has special rules for how some back payments must be handled. The rules differ depending on the type of disability benefits you receive and whether you're spending your own back pay or you're a representative payee handling large back payments on behalf of someone else (the "beneficiary").
Here's what you need to know about Social Security's SSI and SSDI back pay rules when spending your own benefits or someone else's.
Social Security has different back payment spending rules depending on what type of disability payments you're receiving:
First, let's briefly look at what affects the amount of past-due pay you'll get.
After your disability application is approved, Social Security will start sending your monthly disability payments and pay you all the back pay you have coming. How much you'll get depends on the following:
Although Social Security generally won't tell you how to spend your own monthly SSI or SSDI benefits, some factors could affect how you handle a large back payment.
Social Security has no spending restrictions on SSDI back payments if you're the beneficiary. You can use that money however you like or choose to save it. But there are some expenses you might need to cover.
First, if you hired a disability attorney or advocate to help with your claim, your legal representative will be paid from the back pay owed to you. Social Security will take the attorney's fee out of the back pay before the agency sends your lump sum to you. Attorney's fees are generally a few thousand dollars, but can go up to $7,200, Social Security's limit. (Learn more about how Social Security disability lawyers are paid.)
Second, the Internal Revenue Service (IRS) considers SSDI benefits as taxable income if you earn above a certain amount. Even if your only income is SSDI and your monthly amounts aren't enough for the IRS to consider them taxable, your lump-sum back payment might be enough to might push you over the limit for that year. But if you know how to do it, you can make some of the back pay count toward prior years to keep this from happening. (Learn how to file taxes on disability back pay.)
Although you won't have to pay taxes on your SSI income (it's not taxable under federal rules), Social Security will pay your attorney or advocate using part of the SSI back benefits you're owed. The agency won't tell you how to spend the remaining back pay you receive, but you'll need to spend it fairly quickly to avoid becoming ineligible due to the SSI resource limits (more on this below).
If you're owed a small amount of back pay, Social Security will issue it in a single lump-sum payment. But if you're owed more than a couple thousand dollars, Social Security will pay your back pay in two or three installments, set six months apart.
Although it might be tempting just to plunk that wad of cash into savings, hanging on to too much could put you over the SSI asset limit and cause your benefits to stop. Learn all the rules about spending and saving SSI back payments.
Social Security has a lot more spending rules for representative payees. If a disability beneficiary has a representative payee, it means that the SSA believes they aren't able to handle their own money responsibly.
You might be appointed as a representative payee for a beneficiary who isn't able to manage their own finances due to:
And all minor children receiving Social Security benefits will have a representative payee. (Learn more about how Social Security chooses a representative payee.)
As a representative payee, it's your responsibility to make sure the beneficiary you're assisting has all their immediate needs met. Current needs include anything the beneficiary needs right away, such as:
Remember that the Social Security benefits you receive on behalf of someone else—including SSI and SSDI back payments—must only be used for the beneficiary's welfare.
After taking care of the beneficiary's immediate needs for food, shelter, and clothing, you can spend some of the back pay to improve their living condition or make special purchases.
If there's money left over after paying for the beneficiary's immediate needs, you must use the remaining disability funds on the following:
As a representative payee, you can spend the beneficiary's Social Security back payments for ongoing expenses like:
If the beneficiary has significant health-related costs not covered by insurance, you can use the back pay to cover these expenses. In fact, you can use the beneficiary's back pay for most medical equipment and costs that aren't covered by health insurance, like:
It's okay for a representative payee to use a beneficiary's Social Security back pay to cover the cost of things that make the beneficiary's life better, such as:
The key is to always spend the money in ways that directly benefit the disability recipient.
In some cases, there might be enough money left over to make significant major purchases that would greatly improve the beneficiary's life. Here are some examples of major purchases a representative payee can make with the beneficiary's back pay.
You can use the Social Security funds to make a down payment on the purchase of a home for the beneficiary or to pay the individual's mortgage.
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:
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.
Back payments can be used as a down payment on an automobile or to make monthly payments on a car or truck. But the vehicle must be used and owned by the beneficiary. If the beneficiary already owns a car, the money can be used for vehicle repairs.
If you're unsure whether the purchase you plan to make is allowed, or you have other questions about what special purchases you can make with the beneficiary's funds, ask Social Security before you spend the money. You can speak with a Social Security representative by calling 800-772-1213.
Supplemental Security Income (SSI) is a need-based benefit for disabled people with little or no work history and few assets. If you're a payee for an SSI recipient, you must be particularly careful about how back payments are spent.
Even if a representative payee handles their money, a beneficiary with more than $2,000 in countable assets ($3,000 for couples) will no longer be eligible for SSI. As the rep payee, it's your responsibility to handle SSI back payments in a way that protects the beneficiary's SSI eligibility.
If too much back payment money is left in a bank account, it could result in the beneficiary losing eligibility for benefits. And certain items you purchase could be valuable enough to negatively affect the beneficiary's eligibility to keep receiving payments.
Fortunately, not all assets, like the beneficiary's primary home or car, count toward the SSI asset limit. Learn more about which assets count toward the SSI asset limits.
If there's disability back pay money left over after the above expenses are paid, the representative payee must save it on behalf of the beneficiary. Although Social Security doesn't dictate how the money should be saved, the agency recommends the following:
Keep in mind that an individual SSI recipient can't have more than $2,000 in assets, or the beneficiary might lose eligibility for SSI. Fortunately, Social Security has a couple of procedural rules in place that help protect otherwise eligible individuals from losing benefits:
Learn more about when SSI back payments are made in installments.
Social Security has special rules for back pay benefits for disabled or blind children who receive SSI. Representative payees must handle SSI received for a child differently than SSI for an adult beneficiary.
Lump-sum back payments for disabled or blind children must generally be deposited into a "dedicated account." A dedicated SSI account is one that's 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. You can't put the child's SSI back pay into any of the following accounts:
Learn more about setting up a dedicated account for a child receiving SSI.
Unlike adult recipients, Social Security won't count the funds in the child's dedicated account as a resource toward SSI eligibility. So, even if the account holds a large amount of money, it can't disqualify the child from receiving benefits. Social Security also won't count any interest earned on the dedicated account as income. So that won't affect the child's eligibility either.
Social Security 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 the following expenses for the child:
Personal needs assistance is any help that is required that relates directly to the child's disability, such as:
About "other necessary and appropriate items or services," Social Security doesn't define what items or services are "necessary" or "appropriate." Contact Social Security if you're unsure whether an expense is a "necessary and appropriate" item or service.
Read more details in our article on how a child's SSI payment is supposed to be spent.
If you use money from the child's dedicated account in ways other than those outlined above, you'll likely have to repay the money using your own financial resources. So, it always pays to check with Social Security before you spend the child's SSI back pay on other expenses.
Learn more about handling a child's SSI benefits in Social Security's Guide for Representative Payees.
Representative payees are required to file a report with Social Security once a year that details how a beneficiary's money was spent. But Social Security can ask to look at the records more than once a year.
And if you're a representative payee and you misuse the benefits you're managing for someone else, you could face criminal charges that could lead to steep fines and even jail time. Learn more about the records you need to keep as a representative payee.
Whether you're the representative payee for someone receiving SSI or SSDI benefits or it's your own disability back pay, if Social Security sends you too much money, you'll have to pay it back. Overpayments of pack pay happen most often when the beneficiary's circumstances change while waiting for a disability decision.
For example, a recipient's back pay could be reduced by income from part-time or temporary work done while waiting for claim approval. And for SSI recipients, any increase in the beneficiary's income or assets, like receiving a small inheritance, could change the amount of benefits due. That includes even temporary increases to in-kind income.
If you must repay money to the SSA, you can often make payment arrangements. Learn more about what you can do if Social Security says you were overpaid.
Updated August 14, 2023