Do you file taxes on disability? Read on to learn about the taxability of Social Security Disability Benefits.
Many people with disabilities rely on disability income to help cover their living expenses. But is Social Security Disability Insurance taxable?
The short answer is: it depends.
In this article, we'll take a closer look at the taxability of Social Security disability benefits; whether you have to file taxes on disability income; and what you need to know about the relevant federal and state laws.
Yes, depending on your total level of income, your Social Security disability benefits (SSDI) may be taxable.
Practically speaking, though, most SSDI recipients do not pay taxes on their disability benefits because their total income, including those benefits, does not put them over the relevant thresholds.
Also, be aware that you may owe state taxes depending on where you live because some states tax Social Security disability benefits. But most states do not tax SSDI benefits.
One crucial question: is Social Security disability income taxable by the IRS? Yes, but the primary issue is whether their Social Security Disability Insurance plus their other income obligates them to pay federal income taxes.
To flag a related question, Supplemental Security Income (SSI) is not taxable.
Though people sometimes refer to SSDI as "Social Security disability income," it is actually a type of insurance, unlike Supplemental Security Income. (As mentioned above, SSDI is short for Social Security Disability Insurance).
Thus, SSDI and SSI are separate federal programs with different rules regarding eligibility and various other issues, including whether or not they are taxable.
So the issue of the taxability of Social Security disability benefits is a separate question from SSI, and though SSDI benefits may be taxable, SSI benefits are not.
So, what are the income thresholds for federal income taxes? It depends on your filing status.
For individuals, if you make $25,000 or less per year, you will not owe any federal income taxes on your SSDI benefits.
If your annual income (including SSDI benefits) exceeds $25,000, then you will need to pay taxes on a portion of your SSDI benefits.
The rules regarding what portion of your disability benefits are taxable are complicated. But two things to know at a high level:
In other words, perhaps 50% of your SSDI benefits will be considered taxable, but your tax rate will not be 50%. Your tax rate will be more like 15-25%, the same tax rate applied to your other income.
The key differences for individuals vs married couples filing jointly are the income thresholds.
If you and your spouse file jointly and your combined income, including half of the value of your SSDI benefits, is $32,000 or less, then you will not have to pay federal income taxes on your SSDI benefits.
If you file jointly and your combined income (including half of your SSDI benefits) is greater than $32,000, then you will need to pay taxes on a portion of your Social Security Disability Insurance.
As with individuals, only a portion of your SSDI benefits will be taxable. And your tax rate on those benefits will be the same as that of your other income.
For this category, the income threshold depends on whether you lived with your spouse at any point during the tax year.
If you are married filing separately and you lived apart from your spouse for the entire year, the income threshold is $25,000.
If you are married filing separately but you lived with your spouse at any time during the tax year, the income threshold is $0.
It is important to note that these income thresholds are subject to change each year. The Internal Revenue Service (IRS) may adjust the thresholds based on changes in the cost of living.
Be sure to check the IRS website or consult with a tax professional to determine how much of your Social Security Disability Insurance may be subject to tax.
Your Social Security Benefit Statement (Form SSA-1099) will be useful for evaluating your tax liability.
Some states, but not all, tax Social Security Disability Insurance.
Here are the states that do tax SSDI benefits:
For these states, how much you must pay in state taxes will depend upon the rules and tax rates in your respective state.
And you will not pay state taxes on your SSDI benefits for those states who do not tax SSDI.
Yes, SSDI backpay may be taxable depending on your circumstances.
SSDI backpay refers to lump-sum payments of SSDI benefits that you were entitled to after becoming disabled but before the Social Security Administration (SSA) approved your application for benefits.
If you receive a lump sum payment, it may create a tax liability if the amount of backpay you receive increases your annual income for that year past the relevant thresholds discussed above.
But the IRS allows SSDI recipients to apply portions of backpay awards to their tax returns for prior years to avoid creating unnecessary tax liability from such lump-sum payments.
For instance, you could amend your tax returns for a prior year if some of your backpay awarded actually reflects SSDI benefits you were entitled to, but had not yet received, in that year.
Yes, you are required to report your SSDI benefits, as well as all Social Security benefits that you receive, as part of your tax returns.
Your Social Security Benefit Statement will note the net amount of Social Security benefits you receive in a given year, including SSDI benefits. (The amount will be in Box 5 of your statement, to be exact).
But as discussed above, you will not necessarily have to pay taxes on your Social Security disability benefits. That said, it is important to include your SSDI benefits when completing your tax reporting for the year, whether or not you ultimately owe taxes on any portion of those benefits.
And note that different rules apply to disability benefits received through a health insurance plan through an employer, though you would also be required to report those disability benefits as well.
For federal taxes, the amount of your Social Security disability that is taxable is capped at either a maximum of either 50% or 85%, depending on your taxable income.
State tax rules vary, so the amount of Social Security disability that is taxable will depend on where you live and the tax rules in your state. (And remember, not all states tax disability benefits).
Yes, you have to claim Social Security disability on your taxes. You may not have to pay taxes on your SSDI benefits depending on your total level of income and what state you live in.
However, you are required to report your Social Security disability on your taxes regardless of whether you ultimately pay taxes on your disability income.
You may have to pay taxes on disability income, depending on various factors including where you live, what your total income is, and whether you file individually or jointly as a married couple.
Many SSDI recipients do not have to pay taxes on their disability income because their total income does not meet the income thresholds. But Social Security disability does count as taxable income, so depending on the circumstances, you may have to pay taxes on a portion of your disability income.
So, is Social Security disability taxable? Yes, Social Security disability may be taxable income if your other income plus half of your SSDI benefits puts you above the relevant income thresholds.
Those income thresholds will depend on your filing status for federal income taxes.
For state taxes, whether you have to pay taxes on your SSDI benefits will depend on where you live and the tax laws in your state. Most states do not tax SSDI benefits, though.
And remember, Supplemental Security Income is a separate federal program, and you will not have to pay taxes on any SSI benefits.
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