The SSDI program is funded in part through mandatory wage withholdings in the form of Federal Insurance Contributions Act (FICA) taxes. Employees and employers pay 6.2% of gross wages in the form of FICA taxes. These taxes help to fund both the SSDI trust and Old-Age and Survivors (OASI) Trust. Collectively, the retirement and disability program are officially called the Retirement, Survivors and Disability Insurance (RSDI) programs.
The amount that you pay in FICA taxes is indirectly correlated with the amount that you will receive should you retire or become disabled. When you work and pay FICA taxes, you earn credits towards SSDI benefits. For example, in 2015, $1,220 in wages will earn you one credit. You can earn a maximum of four credits per year.
Social Security uses a complex formula to determine exactly how much you will receive based on both your Primary Insured Amount (PIA) and Average Indexed Monthly Earnings (AIME).
Your AIME looks at your past earnings and indexes those earnings based on prevailing wages for each year. It adjusts your income for the level of inflation to standardize your earnings over time. SSA then uses the years in which you reported the highest indexed earnings, adds those earnings together and then divides the earnings by the number of months it took to generate those earnings. For example, if your highest indexed earning years were $40,000 in 2009, $45,000 in 2010 and $50,000 in 2011, SSA would add up those earnings for a total of $135,000 and then divide by 36 months to arrive at Average Indexed Monthly Earnings of $3,750 per month.
The PIA takes your AIME and multiplies it by three separate “bend points.”
For all Average Indexed Monthly Earnings up to $826, SSA takes 90% of these earnings. For earnings between $826 and $4,980, it takes 32% of these earnings. For earnings above $4,980, it takes 15 percent of these earnings. The sum of these three calculations is your PIA.
From the example above, with an AIME of $3,750 per month, your PIA would be 90 percent of $826 plus 32% of $2,924, or $1,670 per month. This would be your monthly benefit if you were approved for SSDI.