The Financial Impact of Disability Benefits on Overall Income

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Are you confused about how your disability benefits work? Understanding how disability benefits impact your overall income is important so that you can plan your monthly spending and make sure that you’re making the most of the money that you receive. The cost of groceries, utilities, and other necessities are rising. Understand the way that Social Security benefits affect your income can help you stretch the income you have and make sure your bills get paid on time.

Types of Disability Benefits

There are several different types of social security benefits. The two most common types of benefits that people receive are Social Security Disability Insurance payments and Supplemental Security Income payments.


Social Security disability payments are made to people who have worked at jobs and have earned work credits but become sick or injured and can no longer work. The amount of work credits that you have earned over the years that you worked will impact your eligibility for disability benefits.

When you submit an application for Social Security disability benefits you will have to show that you have a medical illness that is listed in the Social Security Administration’s Blue Book. And you will have to include medical evidence that shows you meet all of the SSA’s Blue Book requirements for that condition.


SSI is paid to the parents of children who are extremely sick or disabled if those parents are low-income. The SSI payment is supposed to help parents pay for extra costs that are caused by the child’s illness and ensure that the child is able to get everything they need. When children with a disability grow up they can apply for SSI on their own. They don’t quality for SSDI because they have never worked, but they can apply for SSI so that they have money to pay for their living expenses.

Calculating Your Total Income

Disability benefits for SSDI are calculated based on a formula created by the SSA that takes into consideration how much you were paid before you become disabled and other factors.

The monthly benefit amount for SSI is based on your Average Indexed Monthly Earnings (AIME) and Primary Insurance Amount (PIA). The SSA will add together up to 35 years that you have worked. They always take the years that you have earned the most money. Then that number is divided by the total number of months for those years. The average is rounded down, and that’s your AIME.

Your PIA is the base amount of your benefits. It is calculated using the total of three fixed percentages of your AIME and bend points that change each year to reflect the national average wage index. You receive 90% of the earnings up to the first bend point, 32% of the earnings up to the second bend point, and 15% of earnings that exceed the third bend point.

Disability Benefits Impact on Taxation

For most people disability benefits are not taxable. However, there are some situations where disability benefits can be taxed:

  • If your spouse earns income, or if you receive income from dividends or other sources.
  • If you are married and file joint taxes your disability benefits can be taxed after you reach a certain threshold of income.
  • If you are married but file taxes separately from your spouse all of your income including disability benefits is taxable.

If you’re not sure if your benefits would be taxable or not you should speak with a Social Security lawyer to find out for sure.

SSD Effect on Other Benefits

If you are receiving Social Security disability benefits or SSI you may quality for other benefits like:

  • Medicaid
  • Medicare
  • SNAP
  • WIC
  • HEAP

Or state specific benefits.

Managing Your Finances with Disability Benefits

When you are receiving disability benefits good planning is the key to making those benefits last for the entire month. Make sure that you understand how Social Security benefits are paid and when you will receive yours. That will help you budget your money. Some tips that can help you manage those benefits are:

  • Create separate budgets for different things, like one for bills and one for groceries or clothing.
  • Keep a daily log of your spending to see where you are spending the most.
  • Use coupons and plan meals in advance. Look through store circulars or look online for sales and plan accordingly. You can save money by stocking up on things you use daily when those items are on sale. You can also save money by buying things like meat in bulk and portioning them out into meals at home.
  • Have an emergency fund that can cover bills and expenses if your benefits are late.
  • Always plan for unexpected expenses so that you won’t be caught by surprise if your car needs repairs or something else unexpected happens.

Financial Planning for the Future With Disability Benefits

Financial planning is essential if you are surviving on Social Security disability benefits. Setting financial goals and milestones will help you make the most of your benefits and make sure that you have a solid financial future. Some good goals to set are:

  • Paying off debt
  • Saving for a home or a car
  • Planning for your children’s education
  • Paying off your mortgage

You may want to work with a Social Security attorney or a financial planner to create a long-term financial plan that incorporates your Social Security disability benefits.

Maximizing Your Income On Disability Benefits

The Social Security wants anyone that can work to do so, even if it’s part time. You can take advantage of work incentives from the SSA that allow you to work for a year to see if you are able to do it to earn money while collecting your full Social Security benefit amount.

Speak With a Disability Lawyer

If you have questions about your specific situation and how Social Security disability payments or SSI will impact your finances fill out a Free Case Evaluation right now. You’ll be connected with an independent social security attorney who subscribes to the website and may be able to help with your case.