A week doesn’t go by that we don’t see clients with questions about Social Security Disability Insurance (SSDI) who do not qualify because they have not paid into the Social Security system. Self-employed farmers, construction workers, truck drivers, or other small business owners are seldom advised about what it takes to build up credits with the Social Security Administration for either retirement, or disability. Social Security Disability Insurance is like every other type of insurance – you must have paid the premium!
Whether a person prepares his or her own tax returns, or has a CPA or other tax preparer complete them, the primary goal of most people is to pay as little or no tax at all. But income tax and self-employment tax are two very different things. At the time this was written (June 2014) a person must show earnings of at least $1200 per quarter for one credit, or $4800 for the year to earn the maximum of four credits. Currently self-employment tax (for social security and Medicare) is at 15.3%. Depending on filing status, single, married or with children, there may be little or no income tax on profit of $4800. But by paying in around $200 of self-employment tax, you are establishing some very important rights with the federal government.
For retirement benefits, the government looks at all earnings reported over your life time. But for disability, they only look at the last 10 years. To be insured, you must have earned and paid in self-employment taxes or FICA in five of those 10 years, or more specifically 20 out of 40 quarters. (For young people, the number of credits is reduced to 6 before age 24, and 12 for those between 24 and 31) However, no matter how sick you are, if you have not paid in the appropriate number of credits, you will not be eligible to draw SSDI or Medicare!
There is a second form of disability benefit called Supplemental Security Income (SSI). This is a form of welfare for disabled people who have not worked enough to qualify for SSDI. In addition to proving disability, you must be extremely poor. A single person cannot have assets of more than $2,000 beyond a house and one vehicle. A married couple can have no more than $3000. Thus if you own farm land, business equipment, rental property, or other assets like a boat or camper, they will have to be sold and the money spent down to under $2,000 before a person can be eligible for SSI. Even cemetery plots and life insurance with cash-surrender value are counted!
If you are married, the government will take into account your spouse’s wages, pension income, Social Security payments, or unemployment benefits. This income can reduce or eliminate your right to get SSI. However, if you have paid your self-employment tax, you can draw your SSDI no matter how much income your spouse has, or assets owned. (Of course you still have to prove your disability with medical evidence, which is also a huge hurdle to jump over!)
Another issue we see frequently are spouses who have operated a farm or business together, but only have attributed the income to one spouse (typically the husband.) Thus a wife who has worked for years, and becomes ill, may not be eligible for disability simply because of the way the couple’s taxes were prepared. It is possible to amend and re-file tax returns going back 3, or possibly 5 years to cure some of these problems, but it can be an accounting nightmare. The best thing to do is think about these issues before someone gets sick and pay in the taxes before it becomes necessary to draw benefits. When you think of Social Security Disability, remember it is a form of insurance. You need to pay the premium!