Can You Collect Long Term Disability and Social Security?

It is generally possible to receive both long-term disability (LTD) and Social Security Disability (SSD) benefits at the same time. Both programs provide financial assistance to individuals unable to work due to a disability, but they originate from different sources and have distinct rules. Understanding how these two benefit systems interact is important for individuals seeking financial support during a period of disability.

Understanding Long-Term Disability and Social Security Disability

Long-term disability (LTD) insurance typically provides income replacement if a health condition prevents an individual from working for an extended period. This type of insurance usually comes from private insurance companies or is offered as an employee benefit through an employer. LTD policies commonly replace a percentage of an individual’s pre-disability income, often ranging from 50% to 70%, and are paid monthly. The specific terms, including the definition of disability and benefit duration, are outlined in the individual policy contract.

Social Security Disability (SSD) is a federal program administered by the Social Security Administration (SSA) and is funded through Social Security taxes. To qualify for SSD benefits, individuals must have a medically determinable physical or mental impairment that prevents them from engaging in any substantial gainful activity (SGA). This condition must be expected to result in death or have lasted, or be expected to last, for a continuous period of at least 12 months. SSD benefits are based on an individual’s past earnings record and work history, requiring a certain number of work credits to be eligible.

The definition of disability varies significantly between these two programs. Private LTD policies may use an “own occupation” definition, meaning an individual is considered disabled if they cannot perform their specific job duties. After an initial period, typically 12 to 24 months, many LTD policies transition to an “any occupation” definition, requiring the individual to be unable to perform any job for which they are reasonably qualified. The SSA uses a stricter standard, requiring proof that the individual cannot perform any substantial gainful activity in the national economy.

How Benefits Interact and Affect Each Other

Receiving both Long-Term Disability (LTD) and Social Security Disability (SSD) benefits involves an “offset” or “coordination of benefits.” Most employer-sponsored LTD plans reduce their payments once an individual begins receiving SSD benefits. This offset prevents “over-insurance” and ensures combined benefits do not exceed a certain percentage of pre-disability earnings.

The offset means the LTD insurer reduces the monthly LTD benefit by the amount received from Social Security. This reduction can include the primary SSD benefit and any dependent benefits paid to a spouse or children. For instance, if an individual receives $2,500 monthly from SSD and their LTD benefit is $5,000, the LTD insurer would reduce their payment to $2,500, resulting in $5,000 in combined monthly benefits.

LTD policies often require claimants to apply for SSD benefits. This allows the LTD insurer to reduce their financial liability by leveraging federal program payments. If an individual receives a lump sum of retroactive SSD benefits, the LTD insurer may require reimbursement for LTD benefits paid during the same period. This is because LTD benefits are often paid out faster than SSD benefits, leading to an overlap in payments that the insurer is entitled to recover.

Navigating the Application and Approval Process

The application processes for Long-Term Disability (LTD) and Social Security Disability (SSD) are distinct. Private LTD insurers have their own procedures, often involving medical records and employer information. LTD insurers’ disability definition can be less stringent initially, sometimes focusing on the inability to perform one’s “own occupation.” This can lead to a quicker approval process for LTD benefits, with elimination periods (waiting periods before benefits begin) ranging from 30 days to a year.

The Social Security Administration (SSA) has a rigorous five-step evaluation process for SSD benefits. The SSA’s definition of disability is strict, requiring a severe impairment that prevents substantial gainful activity and is expected to last at least 12 months or result in death. This often leads to a lengthy approval process, potentially taking several months to over a year for an initial decision.

A mandatory five-month waiting period applies to SSDI benefits, meaning payments do not begin until the sixth full month after the SSA determines the disability began. While this waiting period does not apply to Supplemental Security Income (SSI), it can create a financial gap that LTD benefits may help bridge. Many LTD policies require individuals to apply for SSD, and some even provide assistance with the SSD application process. Consistency in medical documentation across both applications is important, as both programs rely heavily on objective medical evidence to establish disability.

Tax Implications of Receiving Both Benefits

The taxability of Long-Term Disability (LTD) and Social Security Disability (SSD) benefits depends on how the premiums were paid and the recipient’s total income. LTD benefits are generally taxable if employer-paid with pre-tax dollars. If an individual paid full LTD premiums with after-tax dollars, the benefits are typically tax-free. When both employer and employee contribute, a prorated portion may be taxable.

Social Security Disability Insurance (SSDI) benefits may be partially taxable depending on the recipient’s combined income and filing status. Combined income is generally calculated as adjusted gross income, plus any tax-exempt interest, plus one-half of the SSDI benefits. 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 it exceeds $34,000. For those married filing jointly, the thresholds are $32,000 for 50% taxability and $44,000 for 85% taxability.

Individuals receiving SSDI benefits will receive Form SSA-1099 from the Social Security Administration, detailing the benefits received for the year. This form helps determine the taxable portion when filing an annual tax return. The Internal Revenue Service (IRS) provides Publication 915, “Social Security and Equivalent Railroad Retirement Benefits,” which offers guidance on the federal income tax rules for Social Security benefits. Supplemental Security Income (SSI) benefits, a separate needs-based Social Security program, are not taxable.