Receiving a settlement from a lawsuit or another type of settlement is usually good news. But when you are in the midst of a disability application with the Social Security Administration you may be concerned whether the settlement will affect your application. Winning a settlement is different than "receiving" a settlement, as there is usually a lag before payment is made. Until the settlement is received, it cannot be counted as income.
Social Security Disability Earnings Test
The Social Security administration offers other benefits besides retirement benefits. If you've recently become disabled, expect to be disabled for at least a year or longer and can no longer work, Social Security offers a disability benefits program to those who qualify. Qualifying for this program begins with meeting two earning tests: a "duration of work" requirement that proves you've worked long enough, based on your age and the years worked, and a "recent" work test based upon the age you experienced the disability. To make it through this round of qualification, as an example, if at the age of 58 you became disabled and could no longer work, the Social Security Administration requires you to have at least nine years of work completed. On the other side of the scale, if you became disabled while working at the age of 30, you would need a minimum of two years work to submit an application.
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After meeting the two criteria for the earnings and age test, the last round of qualification for acceptance into the program is the disability itself. After passing the first qualification round, Social Security sends your application to a regional office within your state. The disability application undergoes a five-step evaluation conducted by Social Security disability staffers and doctors. They contact your doctor to determine whether you can perform any other type of work, still do the work you did before the disability, whether your medical condition is comparative to or on their severe list of impairments, the severity of your disability and whether you are currently working. The only criterion for the disability is whether it meets this five-step evaluation. Income is not a factor in determining eligibility for the program. Any settlement won or received, regardless of its nature, will have no affect on your Social Security disability application.
State Disability Insurance
State disability insurance, in the states that provide it, covers those who experience a non-occupational injury or illness that prevents them from working. Most state disability insurance is for short-term injuries or illnesses, such as during childbirth or post-surgery recovery. Awards or settlements do not affect this assistance, unless the award or settlement comes from a workers' compensation case, in which case you are automatically disqualified from receiving SDI. In California, for example, benefits are paid based upon previously reported wages in specific quarters.
Private Disability Insurance
In states that don't provide access to state disability insurance, many companies provide access to an elective form of disability insurance. But if the state does require an employer to provide this type of program, you could qualify for this type of insurance individually. Again, a settlement of another type, such as a lawsuit or anything other than a settlement for a worker's compensation case, does not affect eligibility. Private disability insurance usually requires that you have no pre-existing medical conditions.