Passive Income and applying for Social Security Disability

Passive income refers to income that takes little effort to both receive and maintain. The earner of the passive income will not directly participate materially in the business activities related to it. 

The most complicated situations arise when disabled individuals own their own businesses.  Generally, these businesses tend to be small and closely held - sometimes solely within a family.  This means that additional steps have to be taken to prove that any income realized from the business is truly passive.  You should make sure that the business is sold to someone qualified to run it and be prepared to show that you are not still running the business.  The contract of sale should include specific details about how and when payments will be made to you from the business, and what those payments represent.  If this is not possible, it may be best to dissolve the business in order to avoid any issues with Social Security.

Having a stream of passive income should not affect your claim for, or receipt of, Social Security disability benefits, as long as the income is truly passive.  That means that you must be prepared to show that the income you receive is not the result of work activity.  In order to do so, you should thoroughly document who is performing activities on your behalf, what their compensation is, and where your income is coming from.

Money that is earned through means other than employment may also be referred to as unearned income. This type of income includes any monetary amount that is not earned through regular or contractual employment. There are some forms of unearned income that SSA may look at when determining if you qualify for benefits such as:

Workers' compensation

Retirement benefits

Pensions

Veterans' benefits

Unemployment

Household expenses paid by others for you

Inheritance payments

Life insurance

Child Support 

Income from investments

Union benefits

Alimony

Income from rental properties 

They are three primary earning activities that would be considered passive for disability insurance benefits. 

-Profits from the ownership of property such as rental income or cash that flows from real estate are both consider passive forms of income.

-Business activities or trade that earn you money, but you do not materially participate in during the year would be passive. This is more common with owners of businesses. 

-Royalty payments that are made to you to use intellectual property as long as they are not derived during an ordinary course of business of trade. 

-Some limited partnerships where the partner does not participate in any of the activities of the business or company. 

Since passive income is money earned that is not related to a work activity or your ability to perform it, most forms will not be taken into account by the SSA when they are determining your eligibility or the amount of monthly benefit you are entitled to receive. 

It is always best when receiving passive income to maintain a hands-off approach to ensure that it is not considered work on your part. This can be done by hiring managers and maintenance people to take care of your rental properties. If investing, have a money manager or stockbroker manage your account. This way the income will be earned through capital appreciation and not actually work in researching and choosing stocks. 

If you need help applying for Social Security Disability or SSI, please contact me at joshben99@gmail.com. I have over 20 years experience with Social Security Disability cases.

Location: Michigan, USA

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