Disability Overpayments Discourage Work

About one in five people on federal disability has some type of job, but the government limits how much they can earn without jeopardizing their cash benefits.

The Social Security Administration wants disability beneficiaries to hold down a job if they can. But when they earn more than the allowed limit in a given month – $1,310 in 2021 – the government sometimes ends up overpaying them for benefits that should’ve been withheld that month. This usually occurs because workers forget to notify the agency they had started a job or fail to provide their earnings information in a timely way.

When the mistake is discovered, Social Security sends a notice asking that the overpaid benefits be returned in the form of a cash payment or a reduction in future disability checks. But the repayments, which usually span several months, are a lot of money – around $9,000 – for a financially vulnerable population.

The problem, according to a Mathematica study forthcoming in the journal Contemporary Economic Policy, is that some people, soon after receiving a notice, reduce their hours or stop working altogether. One beneficiary described the repayment requests as a “penalty for working.”

In an analysis of an SSA database that tracks overpayments, the researchers examined the impact of the notices on working disability recipients who received them between 2007 and 2014. Six months prior to receiving a notice, 58 percent were employed and earning over the limit.

This employment rate declined gradually each month, presumably due to natural attrition. But the researchers find that the drop in the rate accelerated in the month they received the overpayment notice and in the following month, falling by 8 percent over that two-month period. About half of that decline was a response to the notices.

Leaving a job conflicts with Social Security’s goal of encouraging beneficiaries to maintain at least part-time work and improve their overall well-being – and if they have a milder disability, eventually return to the labor force full-time and end their reliance on benefits.

To that end, the agency supports workers with job placement programs and provides a 12-month period in which benefits are paid even if they are testing out a job that pays more than the dollar limit.

Once that period ends, however, the earnings limit kicks in and overpayments can be an issue. Workers who exceed the limit must quickly inform Social Security so the agency can withhold their benefits that month. The agency continues to pay benefits in the months that earnings dip below the limit.

But the researchers said the decline in work activity in response to receiving an overpayment notice might indicate a need to change Social Security’s procedures, such as sending reminders to workers to report their monthly earnings.

Curtailing the overpayments, they said, “may better align with continued employment.”

To read the preliminary working paper on which the journal article is based, see “How Do Work-related Overpayments Affect the Earnings of Overpaid Social Security Disability Insurance Beneficiaries?”  by Denise Hoffman, Priyanka Anand, John Jones, and Serge Lukashanets.

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.