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Self Employed And Social Security Disability Claims

By Pitt Dickey

People who run their own businesses become disabled just like people who work for someone else. It’s usually pretty easy to determine when an employee stops working due to illness. He doesn’t come to work and doesn’t get paid. It’s a trickier determination for the self employed among us. The fellow who owns his business may come in for 30 hours a week instead of his usual 60 hours due to illness. Is he eligible for Social Security Disability Insurance Benefits? That’s the question this month’s column will examine. The Social Security Administration (SSA) has a specific policy that deals with evaluating disability claims of the self employed.

Essentially, the SSA cannot pay Disability Insurance Benefits to a person who is working and earning above a certain amount. The SSA has an elaborate definition of working which is called “substantial gainful activity” (SGA). SGA is defined as work that “involves doing significant physical or mental activities (and) is the kind of work usually done for pay or profit. Significant activities are useful in the operation of the business and have economic value. Work may be substantial even if it is performed on a part-time basis, or even if the individual does less, has less responsibility, or makes less income than in previous work. Work activity by a self-employed person is gainful if it is the kind of work usually done for profit, whether or not a profit is realized.”

If a person performs SGA then no matter how sick he or she may be, the SSA cannot pay them Disability Insurance Benefits. For example, consider Al, who has a high tolerance for pain. Al drags himself into work every day when most other people would stay home. Al can be determined to be performing SGA and thus ineligible for disability benefits. The SSA in evaluating Al’s claim will first look to see if Al is performing SGA. If Al is performing SGA then the SSA will not consider his health problems and deny his claim.

Now consider Bob, who has the same health problem as Al. Bob stayed home and didn’t perform SGA. Bob might be eligible for disability benefits if Bob meets the medical portion of the disability test. The self employed tend to fall into Al’s category. They are highly motivated individuals who are well aware if they aren’t at work their business may fail. They are caught in the Catch 22 situation of either going to work and not being eligible for disability benefits or staying home and potentially obtaining disability benefits but watching their business go into bankruptcy. If this system seems less than fair, you have an understanding of one of the problems of the SSA disability system.

SGA is not determined by income alone. Al may be working 40 hours a week at his business but not turning a profit. His time at work despite not making money can be determined to be SGA. The SSA uses three tests to determine if a self employed person is performing SGA.

Test One: Significant Services And Substantial Income

The SSA notes that many self employed such as “carpenters, gardeners, handymen, nurses, bookkeepers, consultant” may work without any other employees or partners as a one person business. If the person receives “substantial income” from his one person business then the SSA will deem that to be SGA. In a business where there is more than one employee, a sole owner will be determined to be performing significant services if he does more than ½ of the time required to manage the business or renders at least 45 hours of management time per month.

The sole owner is deemed to have earned substantial income from his business if his countable income from the business averages more per month that an amount set out in the SSA guidelines for the particular year. The SSA rules resemble the complexity of the IRS in determining what is countable income. To greatly simplify, the SSA must determine what the person’s net income is. Gross income minus normal business expenses equals net income. The SSA will then deduct from the person’s net income the value of unpaid help provided by the person’s spouse, children or others and also subtract any impairment related work expenses (such as special equipment like wheel chairs or cost of special transportation to work.).

If the self employed person’s countable monthly income was above $1070 in 2014, $1040 in 2013, $1010 in 2012, or $1000 in 2011 or 2010, then he will be deemed to been performing SGA and not eligible for disability benefits.

Tests Two And Three: Comparability Of Work And Worth Of Work

If the SSA determines that the self employed person is not performing SGA by performing significant services or earning substantial income, then the SSA will consider the matters of “comparability” and “worth of work.” The SSA will find that the person is performing SGA if it finds:

a. His work activity considering ” hours, skills, energy output, efficiency, duties and responsibilities” is comparable to a person without health problems in the local area who works in the same sort of business. Or;

b. His work activity, even though it is not comparable to other healthy persons in the same sort of business, is clearly worth more than the amount allowed for SGA in the particular year “when compared to the salary an owner would pay to an employee for such duties in that business setting.”

As shown above, the self employed who continue to try to operate their business while applying for disability insurance benefits will undergo serious scrutiny of the level of their work with their business.


Pitt Dickey has practiced law handling Social Security Disability claims in Fayetteville, NC since 1978. He practices with the law firm of Smith, Dickey, Dempster, Harris, P.A. at 315 Person Street, Fayetteville NC 28301. He can be reached at [email protected], or 910 484 8195 or www.smithdickeydempster.com.