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.
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.)
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.)
So, what should you do with your lump sum of SSI disability backpay benefits? First, you can pay for current expenses, such as:
Second, you can purchase any of the following assets, which won't count toward your SSI asset limit:
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.
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