SSI Back Pay Spending Rules

If you were granted disability benefits through the SSI (Supplemental Security Income) program, Social Security 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.

Saving your SSI back pay can be risky because having more than $2,000 in countable resources ($3,000 for a couple) can jeopardize your SSI eligibility. Luckily, the SSA generally excludes SSI back pay from your resources for nine months after you receive it.

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, the Social Security Administration (SSA) may owe you back payments of benefits for anywhere from three months to two years or more. Your back pay won't go back further than your application date.

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 right away, 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 back pay. The rule now 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 SSI Back Pay Be Used For?

What should you do with your lump sum of SSI disability back pay 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.

What Can't You Spend Your SSI Back Pay On?

If you receive your SSI back payments yourself, Social Security has no rules restricting how you can spend the money. The SSI back pay spending rules come into play if you have a representative payee who receives your SSI deposit on your behalf, and the SSA has even stricter rules when a child has a representative payee. (More on the representative payee rules below.)

But even though there aren't strict rules on what you can buy, make sure you keep receipts so you can show Social Security how you spent some or all of your lump-sum payments. While you can spend your own back pay however you want, 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 wants to ensure you don't exceed the SSI resource limit—$2,000 for individuals or $3,000 for married couples—and that you haven't simply withdrawn your back pay from your bank account to keep at home or given it to family members for safekeeping. So keep the receipts.

(Don't give your back pay to a family member to hold. Giving money away can make you ineligible for SSI for several months because of the transfer penalty.)

When Does Social Security Review Your Spending Records?

Social Security doesn't routinely audit every SSI recipient's detailed spending records, even after issuing large back payments. Instead, the SSA periodically reviews your financial status to confirm that you still meet SSI's income and resource limits. These reviews can take place:

• during routine SSI redeterminations (typically every one to six years)
• when you report a change that could affect eligibility, such as marriage or a change in living arrangements, or
• if Social Security has reason to believe income or resources weren't reported accurately.

During a financial review, Social Security focuses on whether you have countable resources over SSI limits, not on how you spent your money. To verify you're still financially eligible for SSI, the SSA might ask you to provide documentation such as:

• bank statements
• transaction history, and
• details on other accounts (like PayPal or Venmo).

In limited situations, Social Security might request additional details about how you spent the money to clarify large withdrawals or transfers.

What Are the Rules for Saving SSI Back Pay?

If you were disabled before you turned 46, you can put your back pay 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 those 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 the cut-off age of 46.

What Happens If You Go Over the SSI Asset Limit?

If your countable resources go over the SSI asset limit, you won't automatically lose your SSI benefits forever—but you could lose eligibility for the months you're over the limit.

If, after nine months, you still have enough of your back pay in your bank account to put you over the SSI resource limit at the start of the next month, Social Security will identify the issue by reviewing your bank account information or perhaps during a routine SSI redetermination or through a reported change. Here's what will happen:

1. At the beginning of the month, the SSA considers you ineligible for SSI because your countable resources are over the limit.
2. Social Security suspends your benefits for that month, and for each month you remain over the limit.
3. If you received SSI benefits for a month you were actually over the resource limit, the SSA might determine it was an overpayment and ask for repayment.
4. The month after you spend down your account balance, bringing your resources back below the limit, your benefits can usually resume. (20 C.F.R. § 416.204.)

(Learn more about financial eligibility issues that can cause your SSI payments to stop.)

Back Pay Spending Rules for Representative Payees

If Social Security decides an SSI "beneficiary" (recipient) isn't able to handle their own money, they assign a representative payee (usually a relative or friend) to manage the payments. To protect the beneficiary, the SSA places extra rules on how the payee can spend the SSI back pay.

If you've been appointed as a representative payee, Social Security has entrusted you with an important responsibility: managing money for someone who can't manage it themselves. SSI is a needs-based program, so you must follow strict rules when spending any back pay. Holding onto it too long—or using it improperly—could put the recipient's benefits at risk.

Priorities for Spending SSI Back Pay

Once a year, Social Security will ask you to fill out a report showing how you spent the SSI recipient's back pay money. The SSA might ask to see your receipts, too. So, it's important that your spending follows the rules below.

Priority One: Basic Needs and Current Bills

Before buying anything extra or saving any back pay, make sure the SSI recipient's current needs are met and that they're safe and stable. Social Security requires you to spend the money in a specific order, starting with the beneficiary's immediate daily needs, including:

• food: groceries and meals
• housing: rent, security deposits, or mortgage payments
• utilities: electricity, gas, water, and heating/cooling, or
• clothing: basic clothes for the current season.

Priority Two: Health and Living Conditions

Once the bills are paid and the refrigerator is full, you can use the back pay to make the SSI recipient's life better by paying for medical care and home improvements. Medicaid might not cover everything, so you're allowed to use back pay for health needs, such as:

• dental work
• physical therapy
• mental health counseling, or
• assistive devices, like glasses, hearing aids, and wheelchairs.

You can also use the money to make the SSI recipient's living space safer and more comfortable. For example, you might pay to build a wheelchair ramp, widen doorways for easier access, or install safety bars in the shower.

These purchases are allowed even if the recipient lives in a home owned by someone else—like a family member—as long as they benefit the SSI recipient. You can also buy items such as furniture or a television that others will use, provided the recipient uses them too.

Priority 3: Enhancing the SSI Recipient's Life

Once basic needs and medical expenses are covered, you can use the money on items that improve the SSI recipient's quality of life. Supporting the individual's mental and emotional well-being is also important. So, you can also use the SSI back pay for:

• entertainment: movie tickets, video games, books, or trips
• education: special training programs or classes, or
• transportation: bus passes or rideshares. You can buy a car or truck if the back pay amount is large, or you can pay for repairs on (or modifications to) a car you already have.

You can always ask Social Security before you spend the money if you're unsure whether a purchase is allowed. You can speak with a Social Security representative by calling 800-772-1213.

Payees: Keeping Savings Below the SSI Asset Limit

Because SSI is for people with low income, you need to make sure the SSI recipient doesn't have more than $2,000 in cash or assets (or $3,000 for a couple). If there's more than that, the SSA cuts off the monthly benefits. But because back pay is often a large amount, Social Security gives SSI recipients a "grace period."

As the payee, you'll have nine months (for each back pay installment) to spend the back pay. During those nine months, that money doesn't count toward the $2,000 limit.

But if the money is still sitting in the bank after nine months, the SSA will count it as an asset. And if that remaining money pushes the total in a bank account over $2,000, the beneficiary will lose their monthly SSI benefits until the money is spent.

Because of the SSI asset limit, it can make sense to spend the back pay on items that don't count toward the resource limit (like a car or furniture) rather than trying to save it all. But be careful of buying assets that could count against the limit—like boats or campers. (Learn more about which assets count toward the SSI asset limits.)

If you have cash left over after nine months and you've bought all the necessities, you can save it, but you must be careful. If it's a small amount, you can put the funds in an interest-bearing bank account, but it will count toward the SSI asset limit.

If it's a larger amount, and the disability started before age 46, the SSI recipient can open an "ABLE account." Money in an ABLE account doesn't count toward the SSI asset limit. (Read more about ABLE accounts.)

Special Rules for Children on SSI

If you're the representative payee for a child receiving SSI, Social Security has stricter rules for what you can spend your child's SSI back pay on. And if the child receives a large back payment (usually more than six times the monthly benefit rate), the SSA requires you to open 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. You must keep the dedicated account separate from any other savings or checking accounts. You can't put the child's SSI back pay into any of the following accounts:

• savings accounts already established for the child
• accounts belonging to the child's parents, or
• any of the representative payee's banking accounts.

Funds in a dedicated account can't be used for food and housing. They can only be used for medical treatment, education or job training, and personal needs assistance (like special equipment or therapy).

But 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. Learn more about setting up a dedicated account for a child receiving SSI.

And for the strict rules on how you can spend a child's SSI payments, see our article on how a child's SSI must be spent.