If you receive Social Security Disability Insurance (SSDI) benefits, you may be wondering: Is Social Security Disability taxable? Do you have to pay taxes on Social Security Disability benefits? These are important questions—especially during tax season—and the answer depends on a few key factors, including your total income and how you file your tax return.
At The Law Offices of Jeffrey A. Rabin & Associates, Ltd., we help clients understand both their disability rights and their financial responsibilities. Here’s what you need to know about how SSDI benefits are taxed and how to avoid surprises when it’s time to file.
Do You Have to Pay Taxes on Social Security Disability?
The short answer is: sometimes. Social Security Disability benefits can be taxed, but not for everyone. Whether or not you owe taxes on your SSDI payments depends on your total income and filing status.
The Internal Revenue Service (IRS) does not consider SSDI benefits alone as taxable income. However, if you have additional income, such as from a part-time job, investments, or a spouse’s earnings, your total income may exceed the IRS threshold, making a portion of your SSDI benefits taxable.
When Is Social Security Disability Taxed?
To figure out if your SSDI benefits are taxable, the IRS uses something called your combined income. This includes:
- Half of your SSDI benefits
- All of your other income sources, such as wages, interest, dividends, or tax-exempt income
If your combined income exceeds certain limits, then a portion of your disability benefits becomes taxable.
For individuals, up to 50% of your income may be taxable if your total income from all sources is between $25,000 and $34,000. If your combined total income is over $34,000, then at maximum 85% of your benefits can be taxable.
If you’re a couple filing together and you make between 32,000 and 44,000 combined, as much as 50% of your benefits can be taxable. If you make over $44,000 combined, then 85% of your income may be taxable.
It’s important to note that these thresholds haven’t changed in years and are not adjusted for inflation, meaning more people are affected over time.
Do You Pay Taxes on Social Security Disability Back Pay?
In some cases, SSDI recipients receive a lump sum payment covering months or even years of back pay. This can push your income for the year above the taxable threshold and cause an unexpected tax bill.
Thankfully, the IRS allows you to apply the back pay to the years it was owed, rather than treating it all as income for the current year. This is called “lump-sum election” and can reduce or eliminate the tax burden. It’s a complex part of the tax code, so it’s wise to speak with a lawyer if you’ve received back pay.
What About SSI? Is That Taxed?
Supplemental Security Income (SSI) is a needs-based program and is never taxed. So if you’re only receiving SSI, you don’t have to worry about federal income taxes. However, this blog is focused on SSDI, which is a separate program based on your work history and the taxes you’ve already paid into the Social Security system.
How to Prepare for Tax Season as an SSDI Recipient
If you think you may owe taxes on your Social Security Disability benefits, there are steps you can take to prepare:
- Request Form SSA-1099: This form shows the total amount of SSDI benefits you received during the year and is necessary to file your tax return.
- Track all sources of income: Whether you’re working part-time, receiving investment income, or have a spouse who works, this can affect whether your benefits are taxable.
- Consider tax withholding: You can request that the SSA withhold federal taxes from your monthly checks, so you’re not caught off guard later.
- Speak to a lawyer: Especially if you’ve received a lump-sum payment or have other income sources, it’s worth getting legal advice.
Let Our Disability Attorneys Help You Understand More
Navigating the intersection of disability law and taxes can be stressful, but it doesn’t have to be. At The Law Offices of Jeffrey A. Rabin & Associates, we focus solely on Social Security Disability law and are here to help you not only apply for benefits but also understand what comes after approval.
Whether you need help applying for SSDI, appealing a denial, or figuring out what to do about taxes on your benefits, our SSDI attorneys here to guide you every step of the way.
Contact us today at 847-299-0008 or reach out online to schedule your free consultation. There are no upfront fees, and we only get paid if you secure benefits.
