Not everyone can go back in time. That does not mean the past won’t come to you. It’s important to understand how Social Security Disability Insurance (SSDI) back pay or retroactive payments affect your Medicare costs.

SSDI Approval Rates

Most people on Medicare are older than 65 but others qualify because they have a disability. As many as 12 to 16% of people qualify for Medicare based on a disability each year.

The SSDI application process, like most government bureaucracy, takes longer than it should. Social Security estimates it takes 3 to 5 months to get a decision after you first apply. If your application is denied, you may then go through as many as four stages of appeals, including a hearing with an Administrative Law Judge. A reconsideration can take anywhere from 4 to 12 weeks after one is requested. As of August 2022, you will have to wait as long as 7 to 24 months for a hearing after one is requested.

According to the Social Security Administration, only 29% of applications met for SSDI in 2019. Of those, only 37% met on the initial application, 13% on a first attempt at an appeal (known as a “reconsideration”), and the rest at a hearing level or above.

Back Pay SSDI

After Social Security approves your application, you will earn monthly benefits. Those benefits kick in after a 5-month waiting period (except for people with ALS who have no waiting period). The 5-month clock starts from the date of your application.

If you win your case on the initial application, there will not be a significant delay in benefits. If you have to go through multiple rounds of appeals, however, you will go way past that 5-month mark! In fact, you may wait so long that Social Security owes you back pay. Back pay is exactly what it sounds like. Social Security will pay you what they would have paid if your application was approved from the very beginning.

For example, if your application was approved 12 months after you applied, Social Security would pay you a lump sum for the 7 months you were left waiting. This takes the 5-month waiting period into account. You would then start to get monthly benefits.

Retroactive SSDI

For all intents and purposes, Social Security considers the date of your application to be the “established onset date” (EOD) for your disability. If your disability started before then, you may be able get retroactive benefits. You will need solid medical documentation to back up that claim. Oftentimes, you will need the assistance of a lawyer to change your EOD.

If you are approved for retroactive SSDI, you can earn benefits as if you applied on the actual date of your disability. You can earn up to an extra year’s worth of benefits that way. Keep in mind that the 5-month waiting period still applies.

For example, if your disability started 17 months before you applied, Social Security would pay you a retroactive sum for 12 months pay. This takes the 5-month waiting period into account. This is the maximum amount you can get, i.e., if your disability started 36 months ago, you would still get 12 months of retroactive pay.

Reworking Your Taxes

Getting a lump sum payment has tax implications. You do not have to pay taxes if your income is below a certain amount that year. A lump sum could push your annual income over the top.

Thankfully, the IRS has a fix for that. You can fill out a form SSA-1099. This form will allow you to file income from backpay and retroactive SSDI payments under the year you should have gotten them. This way all the money won’t count in one year. This form does all the work for you. You won’t have to redo your taxes for those other years.

Hopefully, this will keep you below the threshold to pay taxes or will at least keep your taxes each year to a minimum. There’s no getting out of taxes if you owe them. The IRS will let you know how much you owe.

Part B Premiums and Part D IRMAA

How much you pay for Medicare is directly affected by your income taxes, which is why it is so important to get your back pay and retroactive payments squared away with the IRS.

Part B premiums are based on your income taxes from two years ago. The more you earned, the more you pay each month. A lump sum could push you into a higher income bracket and increase your Part B premiums.

Likewise, people with higher income pay an extra amount know as the Income Related Monthly Adjustment Amount (IRMAA) for their Part D coverage. Again, the more you earned, the more you pay. People in the lowest income bracket do not pay anything.

Medicare Savings Programs

Finally, your eligibility in a Medicare Savings Program (MSP) or the Extra Help Part D Low Income Subsidy (LIS) could be in jeopardy based on a lump sum payment. These programs can significantly decrease your Part A, Part B, and Part D costs if you meet your state’s income and asset requirements.

Unlike Part B premiums and Part D IRMAA, your incomes taxes from two years ago do not come into the equation. Instead, your MSP application looks at your current income and assets. For the record, SSDI benefits count as income. Because program eligibility varies by state, you will want to reach out to your local Medicaid office to find out how they will look at back pay or retroactive SSDI payments.

Get Help If You Need It

Social Security issues can be tricky to navigate. It may be in your best interest to work with a lawyer who specializes in SSDI. If you are awarded back pay, Social Security sets a limit on what your lawyer can charge you for their services. You will pay no more than $6,000 or 25% of the back pay amount, whichever costs less.

 

Annual Statistical Report on the Social Security Disability Insurance Program, 2020 – Outcomes of Applications for Disability Benefits. Social Security Administration Research, Statistics, and Policy Analysis. https://www.ssa.gov/policy/docs/statcomps/di_asr/2020/sect04.html

Average Wait Time Until Hearing Held Report | Public Data Files. SSA.gov. https://www.ssa.gov/appeals/DataSets/01_NetStat_Report.html

CMS Program Statistics – Medicare Total Enrollment. CMS.gov. https://data.cms.gov/summary-statistics-on-beneficiary-enrollment/medicare-and-medicaid-reports/cms-program-statistics-medicare-total-enrollment

How Long Does a Social Security Disability or SSI Appeal Take? Social Security Disability SSI Resource Center. https://www.govinfo.gov/content/pkg/USCOURTS-caDC-15-05118/pdf/USCOURTS-caDC-15-05118-1.pdf

Medicare Savings Programs. Medicare.gov. https://www.medicare.gov/basics/costs/help/medicare-savings-programs

Publication 915 (2021), Social Security and Equivalent Railroad Retirement Benefits. IRS.gov. https://www.irs.gov/publications/p915

What You Should Know Before You Apply for Social Security Disability Benefits. SSA.gov. https://www.ssa.gov/disability/Documents/Factsheet-AD.pdf