If you or someone you’re acquainted with receives Social Security Disability Income (SSDI), you might have come across the term “back pay.” While it’s not the official term used by the Social Security Administration (SSA) to describe “past-due benefits,” it’s the phrase commonly used. These past-due benefits pertain to a period during which you were medically eligible for disability benefits but were awaiting approval to actually receive them.
Dealing with back pay is quite common, as the disability claims process can be lengthy. It can be even more prolonged if an applicant is initially denied and subsequently files an appeal. Fortunately, the SSA ensures that you receive the benefits you’re entitled to. However, comprehending back pay can be a bit complex.
Understanding SSDI Back Pay:
Back payments can retroactively cover the time from your original application date. To illustrate, let’s consider an example provided by AARP. Suppose you developed arthritis that progressively worsened to the point where it prevented you from working starting October 18, 2020. You applied for SSDI on November 1, 2020, but your application was denied. Following the denial, you appealed and obtained a hearing with an administrative law judge.
During the hearing, you present evidence in the hopes of swaying the judge’s decision in your favor. If the judge rules in your favor, it establishes that your disability began back in October 2020. The SSA then calculates your SSDI benefit based on your earnings history to determine the amount. Assuming your benefit is determined to be $1,200 per month, but it’s now February 2022, and you haven’t received a payment since October 2020.
This is where back pay becomes significant. It’s been 15 months since you started dealing with your disability, known as your onset date by the SSA. SSDI benefits have a mandatory five-month waiting period. After this period, benefits commence (which means they start in the 6th full month after the onset date). All in all, this means you’re entitled to 10 months of back pay!
How the SSA Manages Back Pay:
Upon approval of the claim, the SSA typically disburses the past-due SSDI benefits as a lump sum within 60 days. If you incurred legal representation costs during the appeal process for your disability case, the SSA will deduct these fees from your back pay (so keep this in mind).
The SSA must pre-approve the fee arrangement with your legal representation, such as a lawyer or advocate. Fortunately, the fee is typically capped at either 25% of the back pay or $6,000, whichever is lower. So, if your total back pay amounts to $12,000 (derived from the $1,200 SSDI benefit in the example multiplied by the 10 months after the waiting period), your lawyer would receive $3,000 from that total.
Is Back Pay Exclusive to SSDI?
No, it’s not exclusive to SSDI. You can also receive back pay when dealing with Supplemental Security Income (SSI), another program offered by the SSA. SSI is a state-run assistance program that provides benefits to low-income individuals who meet certain eligibility criteria. However, the rules for back pay in SSI differ from those in SSDI.
When it comes to SSI, the payment commencement is linked to your application date, not your onset date like with SSDI. Additionally, SSI doesn’t have a waiting period, unlike the 5-month wait for SSDI. Because of these distinctions, the calculation of back pay is different for SSI. It’s also worth noting that if your total back pay exceeds the SSI program’s maximum monthly benefit of $841 (as of 2022), you won’t receive it in a lump sum. Instead, it will be paid out in three installments at 6-month intervals.
What’s the Maximum Back Pay for SSDI or SSI?
It’s crucial to understand the implications of dealing with back pay for both SSDI and SSI. However, the major advantage of these back pay opportunities is that there’s no upper limit for either option!
How Does Back Pay Affect Your Taxes?
Keep in mind that a portion of Social Security benefits is subject to taxation. This means that some of your back pay may be taxable if your overall income surpasses a specific threshold. Fortunately, the Internal Revenue Service (IRS) acknowledges this and provides individuals the chance to minimize their risk of exceeding that threshold. They do this by allowing individuals to recalculate back pay from the previous year to be included in that year’s income for tax purposes. This is known as a lump-sum election.
Can You Provide Examples of Back Pay?
Individuals who receive back pay are assigned a “date of entitlement.” This is when the SSA acknowledges that benefits are owed. The process is distinct for SSI and SSDI. For SSDI, back pay is provided 5 months after your disability onset date. We previously explained an example of SSDI back pay. An example of SSI back pay would be:
In Conclusion:
Back pay may seem intricate, but it doesn’t have to be. Officially termed past-due benefits, back pay constitutes the funds you receive for the months between your application date and the date you were approved to receive those benefits. This delay arises due to the prolonged nature of the disability application process. Remember that SSDI benefits have a 5-month waiting period, while SSI does not. Each option has its unique characteristics, so it’s vital to have a clear understanding. If you have any questions about back pay, it’s advisable to contact the SSA.