A statutory formula determines monthly payment levels for Social Security Disability Insurance (SSDI). In addition, the law also eliminates from benefit calculations one year of a SSDI beneficiary's lowest earnings for every five years of earnings (also known as the one-for-five rule), which equates to a maximum of five "disability dropout years" for an individual with 25 or more years of earnings. The application of CDYs is not common, affecting approximately 0.16% of SSDI beneficiaries between 2000 and 2013. This report describes how workers become insured for SSDI benefits, how SSDI benefits are calculated, and the use of dropout years in benefit calculations. Becoming Fully Insured for SSDI

				Quarters of Coverage

To be fully insured, a worker must have worked a minimum amount of time in employment covered by Social Security. Generally, an individual must have one quarter of coverage (also referred to as "credits") for each calendar year after the age of 21 up to the year before the individual (1) reaches the age of 62, (2) dies, or (3) becomes disabled. A minimum of six quarters is required to become fully insured. In 2014, each quarter of coverage requires $1,200 in earnings, which is indexed annually to average wage growth. Recency of Work

In addition, a recency of work test requires the worker to have 20 quarters of coverage in the 40 quarters preceding the onset of disability (generally five years of work in the last 10). The AIME is calculated as the sum of indexed earnings over the computation period, divided by the number of "computation years" (in months). This adjusts a beneficiary's earnings to be comparable to the earnings level in the year he or she became disabled. This provision reduces the effects of years of lower earnings on a disabled worker's benefit amount. Childcare Dropout Years in AIME Calculations

In addition, in calculating the AIME, disabled workers who receive fewer than three disability dropout years under the one-for-five rule (as described above) may be credited with up to two additional dropout years based on the care of a child, for up to a total of three dropout years.
Eligibility for Social Security Disability Insurance (SSDI) benefits are based on a worker's insured status, and payment levels are associated with the individual's career earnings under covered employment. Monthly payments are calculated using a formula that takes into account the period of employment, a worker's average earnings over that period, and the application of "dropout years."
To be insured for SSDI benefits, a claimant must have worked a minimum amount of time in covered employment. First, a worker must be "fully insured," which requires one quarter of coverage for each calendar year after the age of 21, with a minimum of six quarters and a maximum of 40 quarters. In 2014, each quarter of coverage requires $1,200 in earnings. Second, a recency of work test requires 20 quarters of coverage in the 40 quarters preceding the onset of a disability; that is generally five years of work in the last 10, although fewer quarters are required for younger workers.
In calculating the SSDI benefit level, up to five years of a worker's lowest years of earnings are eliminated or "dropped" to minimize the effect of lower years of earnings on monthly payments. An eligible worker who becomes disabled has one year of earnings dropped (via the disability dropout year provision) for every five years of earnings, known as the one-for-five rule. A separate childcare dropout year (CDY) provision also disregards from benefit calculations up to two years in which a beneficiary received no income during periods when he or she was caring for a young child. The number of CDYs applied to a benefit calculation may be offset by the number of disability dropout years applied and vice versa. The CDY provision largely benefits a small subset of SSDI recipients with lower career earnings.
This report provides (1) an overview of the SSDI program and how workers become insured for SSDI benefits, (2) an explanation of how benefit payments are calculated, and (3) a description of how the dropout year provisions affect the calculation of disability benefit payments. The report concludes with a brief analysis of the earnings of disabled workers that have been credited with CDYs.