Can You Collect Long-Term Disability and Social Security?
Can you receive both long-term disability and Social Security? Learn how these distinct benefits interact and are managed.
It is common for individuals facing a long-term inability to work due to health conditions to wonder about their financial support options. A frequent question arises regarding the possibility of receiving both long-term disability (LTD) benefits and Social Security Disability (SSD) benefits at the same time. While it is often possible to receive payments from both sources, understanding how these distinct programs interact is important for navigating the process effectively. The coordination of these benefits involves specific rules and considerations that can affect the total amount of support received.
Differentiating Long-Term Disability and Social Security Disability
Long-Term Disability (LTD) insurance is typically a private policy, often provided as an employee benefit or purchased individually. These policies aim to replace a portion of income lost when a disabling condition prevents an individual from performing their job duties. To qualify for LTD benefits, an individual must have active coverage when their disability begins and meet the policy’s definition of “disability.” This often starts with an “own occupation” standard. After a period, commonly 24 months, the definition may transition to an “any occupation” standard, requiring the individual to be unable to perform any occupation for which they are reasonably qualified. Most LTD policies also include an elimination period, typically 90 to 180 days, which is a waiting period before benefits begin.
In contrast, Social Security Disability (SSD) is a federal government program administered by the Social Security Administration (SSA). It provides benefits to individuals with severe medical conditions that prevent them from engaging in substantial gainful activity (SGA) and are expected to last at least 12 months or result in death. There are two primary types of Social Security disability benefits: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).
SSDI is based on an individual’s work history and the Social Security taxes they have paid, requiring a certain number of work credits. Generally, individuals need 40 credits, with 20 earned in the last 10 years ending with the year their disability began, though younger workers may qualify with fewer credits. SSI, on the other hand, is a needs-based program for individuals with limited income and resources, regardless of work history. For concurrent benefits with LTD, SSDI is the more relevant program, as LTD policies replace earned income.
How Benefits Are Coordinated
The simultaneous receipt of Long-Term Disability and Social Security Disability benefits often involves a coordination mechanism known as an “offset” or “integration.” Most LTD policies include provisions that allow the insurer to reduce the amount of the monthly LTD benefit by the amount of SSD benefits an individual receives. This means that when an individual is approved for SSD benefits, their LTD payout will typically decrease.
Offset clauses prevent “over-insurance,” ensuring combined disability income does not exceed a certain percentage of pre-disability earnings, commonly 60% to 80%. Insurers often require LTD claimants to apply for SSD benefits, and some may assist with the SSD application process, as it is financially beneficial for them if the claimant qualifies for SSDI. For example, if an LTD policy pays 60% of a $5,000 pre-disability income, resulting in a $3,000 monthly LTD benefit, and the individual qualifies for $1,500 per month in SSDI, the LTD benefit would be reduced to $1,500, maintaining the total combined benefit at $3,000.
Conversely, SSD benefits are generally not reduced by the receipt of LTD benefits, with specific exceptions like workers’ compensation or other public disability benefits. If an individual receives a lump sum of SSDI backpay for a period during which they also received full LTD benefits, the LTD insurer will typically seek reimbursement for the overpaid amount.
Important Considerations for Concurrent Benefits
Managing concurrent Long-Term Disability and Social Security Disability benefits requires careful attention. Individuals must promptly inform the LTD insurer upon approval and receipt of SSD benefits. Failure to report SSD approval can lead to overpayments from the LTD insurer, which they will seek to recover. Insurers may request a lump sum repayment or reduce future LTD benefits until the overpayment is satisfied. If repayment is not made, the LTD insurer may suspend benefits or pursue legal action.
Regarding tax implications, the taxability of LTD benefits depends on who paid the premiums. If an employer paid the premiums for the LTD policy, the benefits are generally taxable income. If the individual paid the LTD premiums with after-tax dollars, the benefits are typically tax-free. If both contributed, the taxability is prorated based on each party’s contribution.
Social Security Disability benefits, specifically SSDI, may also be partially taxable depending on the recipient’s total income. This includes half of their Social Security benefits plus other adjusted gross income and tax-exempt interest. For single filers, up to 50% of SSDI benefits may be taxable if combined income is between $25,000 and $34,000, and up to 85% if combined income exceeds $34,000. For those filing jointly, these thresholds are $32,000 to $44,000 for 50% taxation and over $44,000 for 85% taxation.
Both LTD and SSD programs conduct continuing eligibility reviews to determine if an individual still meets their respective definitions of disability. The Social Security Administration’s continuing disability reviews (CDRs) vary in frequency based on the likelihood of medical improvement. Long-Term Disability insurers also conduct periodic reviews, ranging from monthly updates to annual comprehensive reviews. A more intensive review often occurs when the LTD policy’s definition of disability changes, such as the transition from “own occupation” to “any occupation,” typically after 24 months of benefits. Approval by one agency does not automatically guarantee continued approval by the other, so maintain thorough medical documentation and comply with all reporting requirements for both benefit sources.