For those starting a business or needing flexible work arrangements due to their disabilities, self-employment can be a viable option while receiving Social Security Disability Insurance (SSDI) benefits. However, navigating the intersection of SSDI and self-employment requires understanding specific rules and regulations established by the Social Security Administration (SSA).
How SSA evaluates self-employment income
The SSA looks at your net earnings from self-employment, not your gross income. Net earnings are your total income from your business minus any business expenses. You must report if your net earnings are $400 or more in a year.
The SSA will use a formula that deducts half of your self-employment taxes from your net income to determine your net earnings from self-employment. Self-employment taxes are:
- Social Security Tax (2025): You pay 12.4% of your net earnings for up to $176,100.
- Medicare Tax: You pay 2.9% tax on all your net earnings. An additional 0.9% is paid on earnings exceeding $200,000 (or $250,000 for married couples filing jointly).
Some types of income, like stock dividends or interest on bonds, do not count as self-employment income unless they are part of your business activities. Similarly, interest from loans is excluded unless your business is primarily focused on lending money. Real estate rentals follow a similar principle.
Lastly, income received from a limited partnership is generally not considered self-employment income because it is usually passive income. Limited partners typically do not engage actively in the business operations and their income from the partnership is more akin to investment income rather than income from active business participation.
Reporting self-employment activity
To report your self-employment income, you must complete and file several forms with the IRS by April 15 each year. These include Form 1040, Schedule C or F (Profit or Loss from Business), and Schedule SE (Self-Employment Tax). Even if you do not owe any income tax, you must complete these forms to pay Social Security self-employment tax. Accurate reporting ensures compliance with SSA requirements and helps avoid complications with your SSDI benefits.
Trial work period rules
The SSA offers a trial work period for SSDI recipients who want to evaluate their capacity to work. During this period, you can work for up to nine months and still receive your benefits, with no impact from your earnings.
During this time, you can explore self-employment opportunities and determine if you can sustain your business. Keep track of your earnings and months worked to ensure you do not exceed the trial work period limits.
Balancing SSDI benefits with business growth
Balancing SSDI benefits with business growth requires careful planning. As your business expands, your income may increase, potentially affecting your SSDI eligibility. Monitoring your earnings and understanding how they impact your benefits is crucial.
Consider consulting with a financial advisor or disability benefits attorney to help you navigate these complexities and make informed decisions about your business growth.
Seeking legal help
Navigating the complex interplay between SSDI benefits and self-employment can be overwhelming, so consulting with an experienced disability attorney is invaluable. A knowledgeable attorney in Social Security disability law can provide guidance tailored to your situation.
They can help you understand how the SSA will evaluate your particular business activities and earnings, ensuring you remain compliant with all reporting requirements while maximizing your allowable income.
Entrepreneurs receiving SSDI must understand how self-employment income affects their benefits. By accurately reporting earnings, utilizing the trial work period, and balancing business growth with benefit requirements, you can successfully manage your SSDI while growing your business.
