If you suffer from a disability that keeps you from working, chances are you may be entitled to Social Security disability benefits. But if you’re already engaged in the Social Security Disability Insurance or the Supplemental Security Income disability benefits process, then you may understand how lengthy and complex the process can often be.
Recognizing this, the Social Security Administration also provides backpay, or past due benefits, to applicants once they are approved – this backpay covers benefits that you are approved for, going all the way back to the date on which you began your initial disability claim. In other words, back pay represents the benefits you would have received if your initial claim had been immediately approved upon review. Many times, it can represent a fairly hefty sum.
- How to Calculate SSDI Back Pay
- When Do I Start Earning Back Pay?
- How Long Do I Have to Wait for SSDI Back Pay?
- When Should I Expect My SSDI Back Pay?
- How Much SSDI Back Pay Will I Receive?
- How Will I Receive My Back Pay?
- What Can I Spend My Back Pay On?
- Are There Cases Where Applicants Don’t Receive Back Pay?
- Do I Have to Pay Taxes on My SSDI Back Pay?
- Disability Back Pay
How to Calculate SSDI Back Pay
The SSA will consider several different factors when calculating the amount that your backpay should be, including the following:
- The date you filed your initial disability claim
- The date the SSA determines as your disability onset date – usually based on your medical records and supporting documentation. This date generally will be determined by a disability examiner or an administrative law judge. If you were disabled long before you submitted your disability benefits application, you may want to work with a qualified disability attorney to help establish the appropriate date of onset.
- Your current level of income and/or assets – the more income you can draw from other sources, the lower your monthly benefit is likely to be.
- Whether you’ve satisfied the five-month waiting period requirement – the SSA does not generally pay out benefits until you’ve been without work for a full five months.
SSI and SSDI are designed to help American workers who have suffered a debilitating disability provide for themselves and their families. Because you pay into SSDI and SSI with every paycheck you earn, the credits you accumulate toward being eligible for disability benefits come back to help you if you suffer a medical condition or disability that renders you unable to work.
It typically takes a long time to submit your disability application and ultimately be approved for benefits – the process is notoriously difficult and time-consuming, and most applicants don’t win their claims until they engage in the appeals process. When this is the case, the SSA also will owe you backpay, going all the way back to the date of your initial disability claim, and perhaps even to the initial onset of your condition if those two dates aren’t the same. It’s good to note that because of the cumbersome nature of the application and appeals process, the SSA ends up owing backpay in most benefits claims cases.
When Do I Start Earning Back Pay?
Disability backpay begins to accumulate on the date you apply for disability benefits, with a couple of caveats. First, the SSA considers the first five months of a disability as ineligible for benefits. The date you identify as your disability onset date can be no further back than 12 months before you file your initial claim. In most cases, to be considered disabled by the SSA, you must suffer a disability or condition that has left you unable to work for at least 12 months or suffer from a medical condition diagnosed as terminal.
It’s important to remember that backpay is different from retroactive benefits, which some applicants also are eligible to receive. While disability backpay dates back to the start of your disability claim, retroactive pay may date back to the onset of your disabling condition, up to 12 months before you filed your claim. You may also be eligible for retroactive benefits if you can show that your disability rendered you unable to work for the time leading up to your initial disability claim.
If you’re working with a disability benefits attorney or law firm, they can help you navigate the differences in the two types of pay and help determine whether you qualify for one or both types. It’s also important to note that retroactive payment applies only to SSDI benefits, not SSI benefits.
How Long Do I Have to Wait for SSDI Back Pay?
The waiting period depends on how long it takes for the SSA to approve your application. The faster your application is approved, the faster you’ll receive backpay. With longer processes, additional pay back continues to accrue. You should keep in mind that there is a mandatory five-month waiting period for all SSDI benefits awards. This is usually a moot point since most SSDI benefits claims take longer than five months to be approved, but it’s a good fact to keep in mind in case your application is approved more quickly.
For example, if your benefits claim is approved one year after your initial application, you’ll be entitled to seven months of disability backpay. But keep in mind that the limit for disability backpay is 12 months, so if your application is approved 24 months after your initial claim is submitted, you are still entitled to just 12 months of disability pay, even though your 24 months of waiting minus the five-month waiting period would be 19 months.
When Should I Expect My SSDI Back Pay?
Most approved applicants will receive their SSDI back pay within about 60 days of their claim being approved. The timing can be iffy, though. Some applicants have reported receiving their backpay by direct deposit even before they receive the award letter notifying them of their disability benefits award.
How Much SSDI Back Pay Will I Receive?
Depending on your specific situation, the SSA will calculate the appropriate amount of disability pay you’re entitled to. In addition, if you worked with a disability lawyer, your attorney is entitled to receive 25% of your backpay as his attorney fee. The SSA will remove that amount and send it to your disability attorney directly. You should note that according to Social Security disability law, your disability lawyer cannot collect any more than $6,000 from your case.
How Will I Receive My Back Pay?
At one time, SSDI and SSI disability benefits recipients received a paper check in the mail each month. But beginning in 2011, the SSA now requires that benefits recipients receive their monthly payments via direct deposit. Once you are approved for benefits, your backpay will automatically be deposited into your bank account. If you do not have a bank account, once your claim is approved, you will have to open one in order to receive your monthly disability benefits.
Your backpay generally will be distributed as a one-time lump sum for SSDI disability back benefits, while SSI back payment generally is parceled out more gradually. You might receive an initial SSI back payment as a lump sum and then receive the rest in three payments, spread out by six months each.
You also have the option of naming a representative payee, meaning that you designate someone else to manage your money for you. That can be a relative, a friend, a caregiver, or even an organization you designate to receive your back payments and then use the money for your well-being. If you go this route, your representative payee will need to submit an annual report to the SSA each year that outlines how the money has been spent to take care of your necessities.
What Can I Spend My Back Pay On?
Feasibly, once your disability payment is received, it belongs to you and can be spent in whatever way you think is appropriate. That said, keep in mind that it’s likely your back payment will be a significant amount, and it’s also likely that you’ve been waiting for it for some time. In some cases, an applicant may receive as much as 18 months of back payment.
You may have debts that have accrued while you waited for your benefits to arrive, which should be the first thing you spend your payment on. Also, remember that SSDI benefits are designed to help you care for yourself and your family, and to meet basic needs. While it might be tempting to spend that huge payment on something fun and exciting, make sure you’re focusing on the basics for your family, such as food, shelter, and health care. If there are excess funds after you’ve handled the basics, consider putting them in a savings account, where they not only earn interest but also are available in case of an emergency.
Are There Cases Where Applicants Don’t Receive Back Pay?
Yes. If an applicant is approved for compassionate allowance and/or shows a documented terminal illness, that applicant’s claim is typically fast-tracked, which means it can bypass the usual stalled process. In that case, the claimant is likely to be approved within a couple of months, which means there isn’t opportunity for back benefits to accrue. In fact, that claimant generally will need to wait an additional three months before receiving any Social Security benefit, to make sure the Social Security disability claim is compliant with the mandatory five-month waiting rule that the SSA has in place.
Do I Have to Pay Taxes on My SSDI Back Pay?
While some portion of your lump sum back payment might be taxable, the IRS makes a substantial effort not to penalize beneficiaries for receiving a large sum from the SSA all in one year. Because federal tax law allows you to apportion some part of those earnings to previous years, you can minimize the amount of income tax you owe during the year you receive the payment.
Every year that you receive disability benefits, the SSA will send you an SSA-1099 tax form. The first form you receive will clearly outline in Box 3 the portion of your lump sum payment that was accrued in previous years. Your form will list each year, along with the total accrued for that year. Make sure to note that this applies to SSDI lump sum payments only, since SSI backpay will be split into multiple payments.
Disability Back Pay
If you suffer from a medical condition or disability and are unable to work, you may qualify for Social Security disability benefits. However, the SSDI and SSI disability benefits approval process can be long, cumbersome, and frustrating. And many applicants may struggle financially as they wait for their disability benefits to begin and as they navigate the often tricky SSA appeals process.
But when all is said and done, you can rest easy knowing that the SSA will compensate you, not only for the benefits you deserve moving forward but also for the benefits that have accrued the whole time you’ve been waiting for a decision. If you’re expecting back payment from the SSA related to your disability benefits claim, we hope the information presented here helps you fully understand what to expect and how best to plan for receiving your comprehensive benefits.