Is Social Security Disability Taxable? (2018)
Many people mistakenly believe that since they paid payroll taxes out of their paychecks to fund their Social Security Disability benefits, theior SSDI checks will not be taxable. Unfortunately this is not always the case. In some situations, benefits that Social Security pays are indeed taxable under federal income tax.
In this article our Orange County Social Security lawyers explain when Social Security Disability benefits might have to include in your taxable income.
Social Security Disability Benefits are Sometimes Taxable
To determine whether you neede to include all or a portion of your Social Security Disability Benefits as taxable income on your federal return, you have to take into account both what you get from SSDI in addition to any other income you have.
To determine your income for purposes of determining taxation of benefits, take one-half of your disability benefits and then add all of your other income (wages and salaries; investment income;, business or farm profits; other miscellaneous income).
If the total amount is less than $25,000 for single filers or $32,000 for joint filers, then you do NOT owe any tax on your Social Security Disability Benefits.
If your total amount of income is greater than than $25,000 for single filers or $32,000 for joint filers, then you MAY have to include some of your benefits as taxable income.
Single filers earning between $25,000 and $34,000, will have up to half of their benefits taxed at the federal level. If your earnings are above $34,000, the maximum percentage of benefits you have to include in taxable income rises to 85%.
For married people filing jointly: when when 1/2 of your Social Security Benefits (either SSDI and/or Retirement Benefits ) plus all of your other joint income is more than $32,000, then up to 85% of your Social Security Disability Benefits benefit is taxable.
Summary of Taxes on Social Security Disability
Under IRS Publication 915, your income from Social Security disability is not taxable if half of your SSDI plus all your other income is less than:
- $25,000 if filing single, head of household or married filing separately—and you and your spouse lived separately for the entire year
- $32,000 if you are married, filing jointly
Consult a Social Security Disability Lawyer or Accountant
This information is general in nature only and does not substitue for the advice of an experienced Social Security Disability lawyer, or a skilled accountant
For the majority of single filers receiving Social Security Disability Benefits, their income levels is usually low enough that they won’t meet these thresholds and won’t be subject to taxation.
However, with many married couples, the non-disabled spouse’s earnings are often enough to send the couple’s total income above the threshold.
Taxes on Social Security Disability Backpay
Additionally, lump sum payments of Social Security “back pay” benefits are often made for the months when you were disabled but not yet approved for benefits. These lump-sum back payments can also increase your total income for the year in which you receive it.
However, to avoid being unfairly taxed on your backpay this way, you are allowed to apply the benefits owed from a prior year to prior tax returns. This lowers your income for the year in which you receive the lump sum.
State Tax on Social Security Disability
Most states – including California – do NOT tax Social Security Disability benefits.
However, the following states DO tax Social Security disability benefit: Colorado, Connecticut, Iowa, Kansas, Minnesota, Montana, Nebraska, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. Of these states, some use the same income brackets as the IRS to tax SSDI benefits, but others have their own tax amounts.
Orange County Social Security Disability Lawyers
As you can see, determining if you will be taxed on your Social Security Disability benefits is somewhat complicated. For this reason it is important to have an experienced Social Security Disability lawyer help you structure your benefits to ensure that you receive the optimal tax treatment.
If you are collecting Social Security – or you are considering applying for Social Security – and you are uncertain about what taxes you will pay, or have any other questions, our experienced Social Security lawyers are happy to answer your questions. Call our attorneys today for a free, confidential, no-obligation consultation.