Social Security Disability Insurance (SSDI): The Five-Month Waiting Period for Benefits

Umar Moulta-Ali
Analyst in Disability Policy

Social Security Disability Insurance (SSDI) is authorized by Title II of the Social Security Act and provides income replacement for eligible individuals who are unable to work due to a longterm injury or illness that is expected to last at least one year or result in death. Current eligibility requirements include (1) verification of an applicant’s disability, (2) filing a claim, (3) a “recent work” and “duration of work” test, (4) verification that an individual has not reached normal retirement age, and (5) a five-month waiting period from disability-onset.

In implementing the five-month waiting period for SSDI benefits, Congress sought to set a time frame that would be long enough for a short-term injury or illness to be corrected, but would also deter individuals who can work from applying for benefits. The first month counted as part of the waiting period can be no more than 17 months before the month of application, and benefits can be applied retroactively for up to 12 months. The Social Security Administration (SSA) encourages eligible individuals to apply for benefits as soon as possible after the onset of a disabling condition.

The waiting period does not apply to individuals who have been previous recipients of SSDI in the five years prior to any current disability. Several other programs, such as Supplemental Security Income (SSI), temporary disability insurance, workers’ compensation, unemployment compensation, and private disability insurance, can provide funds for eligible SSDI applicants facing financial hardship during the five-month wait period.

This report explains the five-month waiting period and its legislative history and will be updated to reflect legislative activity.


Date of Report: August 31, 2012
Number of Pages: 9
Order Number: RS22220
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Federal Deductibility of State and Local Taxes

Steven Maguire
Specialist in Public Finance

Under current law, taxpayers who itemize can deduct state and local real estate taxes, personal property taxes, and income taxes from federal income when calculating taxable income. In addition, a temporary deduction for sales taxes in lieu of income taxes is available, though it expires December 31, 2011. The federal deduction for state and local taxes results in the federal government paying part of these taxes through lower federal tax collections. Theory would suggest that taxpayers are willing to accept higher state and local tax rates and greater state and local public spending because of lower federal income taxes arising from the deduction. In addition, there is some evidence that state and local governments rely more on these deductible taxes than on nondeductible taxes and fees for services.

Repealing the deductibility of state and local taxes would affect state and local government fiscal decisions, albeit indirectly. Generally, state and local public spending would decline, although the magnitude of the decline is uncertain. And, repealing the deduction for state and local taxes would shift the federal tax burden away from low-tax states to high-tax states. Maintaining the current deductibility would continue the indirect federal subsidy for state/local spending.

Expanding deductibility, such as extending the sales tax deduction option or allowing nonitemizers to deduct taxes paid, would likely increase the subsidy for state and local spending. The sales tax deduction option would primarily benefit taxpayers in states without an income tax that are already itemizing. The effect of allowing non-itemizers to deduct taxes paid would depend on the type of deductible tax. For example, property taxes are only paid (directly) by property owners whereas all consumers pay sales taxes in states that levy a sales tax. P.L. 111-312, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, extended the sales tax deduction option through the 2011 tax year.

In the 111th Congress, P.L. 111-5, the American Recovery and Reinvestment Act, provided for an above-the-line deduction for sales and excise taxes paid on new vehicle purchases for nonitemizers which has expired. The President’s FY2013 budget includes an extension of the sales tax deduction option through 2013 and proposes a limit on the tax rate (generally a 28% marginal tax rate) at which itemized deductions would reduce tax liability. In the Senate, S. 3521 would also extend the deduction through 2013, reducing revenues by $4.4 billion over the 2013 to 2022 budget window.


Date of Report: September 20, 2012
Number of Pages: 14
Order Number: RL32781
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Primer on Disability Benefits: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI)

Umar Moulta-Ali
Analyst in Disability Policy

Generally, the goal of disability insurance is to replace a portion of a worker’s income should illness or disability prevent him or her from working. Individuals may receive disability benefits from either federal or state governments, or from private insurers. This report presents information on two components of federal disability benefits, those provided through the Social Security Disability Insurance (SSDI) and the Supplemental Security Income (SSI) programs. The SSDI program is an insured program that provides benefits to individuals who have paid into the system and meet certain minimum work requirements. The SSI program, in contrast, is a meanstested program that does not have work or contribution requirements, but restricts benefits to those who meet asset and resource limitations.

The SSDI program was enacted in 1956 and provides benefits to insured disabled workers under the full retirement age (and to their spouses, surviving disabled spouses, and children) in amounts related to the disabled worker’s former earnings in covered employment. The SSI program, which went into effect in 1974, is a needs-based program that provides a flat cash benefit assuring a minimum cash income to aged, blind, and disabled individuals who have very limited income and assets.

To receive disability benefits under either program, individuals must meet strict medical requirements. For both SSDI and SSI disability benefits, “disability” is defined as the inability to engage in substantial gainful activity (SGA) by reason of a medically determinable physical or mental impairment expected to result in death or last at least 12 months. Generally, the worker must be unable to do any kind of work that exists in the national economy, taking into account age, education, and work experience.

Both programs are administered through the Social Security Administration (SSA) and therefore have similar application and disability determination processes. Although SSDI and SSI are federal programs, both federal and state offices are used to determine eligibility for disability benefits. SSA determines whether someone is disabled according to a five-step process, called the sequential evaluation process, where SSA is required to look at all the pertinent facts of a particular case. Current work activity, severity of impairment, and vocational factors are assessed in that order. An applicant may be denied benefits at any step in the sequential process even if the applicant may meet a later criterion.

The SSDI program is funded through the Social Security payroll tax and revenues generated by the taxation of Social Security benefits, portions of which are credited to a separate Disability Insurance (DI) trust fund. In contrast, the SSI program is funded through appropriations from general revenues.


Date of Report: August 31, 2012
Number of Pages: 11
Order Number: RL32279
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Monetary Policy and the Federal Reserve: Current Policy and Conditions

Marc Labonte
Specialist in Macroeconomic Policy

The Federal Reserve (the Fed) defines monetary policy as the actions it undertakes to influence the availability and cost of money and credit. Because the expectations of market participants play an important role in determining prices and growth, monetary policy can also be defined to include the directives, policies, statements, and actions of the Fed that influence how the future is perceived. In addition, the Fed acts as a “lender of last resort” to the nation’s financial system, meaning that it ensures continued smooth functioning of financial intermediation by providing financial markets with adequate liquidity. This role has become of great importance following the onset of the recent financial crisis.

Traditionally, the Fed has three means for achieving its goals: open market operations involving the purchase and sale of U.S. Treasury securities, the discount rate charged to banks who borrow from the Fed, and reserve requirements that governed vault cash or deposits with the Fed as a proportion of deposits. Historically, open market operations have been the primary means for executing monetary policy. Recently, in response to the financial crisis, direct lending became important once again and the Fed has created a number of new ways for injecting reserves, credit, and liquidity into the banking system, as well as making loans to firms that are not banks. As financial conditions normalized, direct lending tapered off. Emergency lending programs have been wound down, with the exception of foreign central bank liquidity swaps.

The Fed traditionally conducts open market operations by setting an interest rate target that it believes will allow it to achieve price stability and maximum sustainable employment. The interest rate targeted is the federal funds rate, the price at which banks buy and sell reserves on an overnight basis. This rate is linked to other short-term rates and these, along with inflation expectations, influence longer-term interest rates. Interest rates affect interest-sensitive spending such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. Through this channel, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions by households and businesses.

Beginning in September 2007, in a series of 10 moves, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% on December 16, 2008, where it now remains. Since then, the Fed has added liquidity to the financial system beyond what is needed to meet its federal funds target through direct lending and, more recently, purchases of Treasury and governmentsponsored enterprise (GSE) securities. This practice is sometimes referred to as quantitative easing, which has tripled the size of the Fed’s balance sheet since financial turmoil began. On September 13, 2012, the Fed announced a new round of asset purchases, pledging to purchase $40 billion GSE mortgage-backed securities per month until the labor market improves, as long as price stability is maintained.

Congress has delegated responsibility for monetary policy to the Fed, but retains oversight responsibilities to ensure that the Fed is adhering to its statutory mandate “maximum employment, stable prices, and moderate long-term interest rates.” H.R. 245 would switch to a single mandate of price stability. The Dodd-Frank Act enhanced the GAO’s ability to audit the Fed, and required a review of its emergency programs. H.R. 459, which the House passed on July 25, 2012, would remove all remaining restrictions on GAO’s audit powers. H.R. 245, S. 3219, H.R. 1512, and H.R. 3428 would change the Fed’s governance structure.


Date of Report: September 17, 2012
Number of Pages: 21
Order Number: RL30354
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Tax Credit Bonds: Overview and Analysis

Steven Maguire
Specialist in Public Finance

Almost all state and local governments sell bonds to finance public projects and certain qualified private activities. Most of the bonds issued are identified as tax-exempt bonds because the interest payments are not included in the investor’s federal taxable income. In contrast, Tax Credit Bonds (TCBs) are a type of bond that offers the investor a federal tax credit or the issuer a direct payment. This report explains the tax credit mechanism and describes the market for the bonds. Build America Bonds, which are no longer issued, are a type of TCB.

There are a variety of TCBs. Qualified zone academy bonds (QZABs), which were the first tax credit bonds, were introduced as part of the Taxpayer Relief Act of 1997 (P.L. 105-34) and were first issued in 1998. Clean renewable energy bonds (CREBs) were created by the Energy Policy Act of 2005 (P.L. 109-58) and “new” CREBs by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). Gulf tax credit bonds (GTCBs) were created by the Gulf Opportunity Zone Act of 2005 (P.L. 109-135), but authority to issue GTCBs has expired. Qualified forestry conservation bonds (QFCBs) were created by the Food, Conservation, and Energy Act of 2008 (P.L. 110-246). Qualified energy conservation bonds (QECBs) and Midwest Disaster Bonds (MWDBs) were created by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343).

The American Recovery and Reinvestment Act of 2009 (P.L. 111-5, ARRA) included several bond provisions that use a tax credit or issuer direct payment. Specifically, ARRA created Qualified School Constructions Bonds (QSCBs), Build America Bonds (BABs) and Recovery Zone Economic Development Bonds (RZEDBs). Unlike other tax credit bonds, the interest rate on the BABs and RZEDBs is a rate agreed to by the issuer and investor and the issuers receive direct payments from the Treasury. In contrast, the Secretary of the Treasury sets the credit rate for the other TCBs. The authority to issue BABs and RZEDBs expired after 2010.

Each TCB, with the exception of BABs, is designated for a specific purpose, location, or project. Issuers use the proceeds for public school construction and renovation; clean renewable energy projects; refinancing of outstanding government debt in regions affected by natural disasters; conservation of forest land; investment in energy conservation; and for economic development purposes. All of the TCBs are temporary tax provisions.

The QZAB and QSCB credit rate is set at 100% and the “new CREB” and QECB credit rate is set at 70% of the interest cost. In contrast, the BAB tax credit rate is 35%. There were several bills introduced in the 111th Congress that would have extended all of the tax credit bond programs including BABs. Only QZABs were extended for the 2011 tax year with $400 million of capacity (P.L. 111-312).

The President’s FY2013 budget proposes extending BABs permanently with a 30% credit through 2013, dropping to 28% thereafter. In the 112th Congress, several bills have been introduced to extend and expand a modified version of BABs, including H.R. 11, H.R. 736, H.R. 747, and H.R. 992. In the Senate, S. 796 would extend QZABs and QSCBs and S. 727 would require all municipal bonds to be issued as tax credit bonds. S. 3521 would extend QZABs with $400 million for each of 2012 and 2013. Another bill, S. 1436, would provide $50 billion of bond capacity for state and local government investment in transportation infrastructure.


Date of Report: September 20, 2012
Number of Pages: 17
Order Number: R40523
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