Are Social Security Disability Benefits Taxable?

Are Social Security Disability Benefits Taxable?

disability and taxes

Filing taxes can be confusing. It can be even more confusing when you receive social security disability benefits. Find out more about disability and taxes from Social Security Disability Advocates USA.

In light of the ongoing COVID-19 pandemic, the deadline to file your 2019 tax return has been extended to July 15, 2020.

Disability and Taxes: What You Should Know

If you receive social security disability benefits, you may be wondering if your benefits count as income for tax purposes. Read on to find out everything you need to know about disability and taxes, brought to you by the experienced representatives at Social Security Disability Advocates.

Is Disability Considered Earned Income?

Social security disability benefits are distributed monthly, usually in the form of direct deposit. In this way, disability is income. But when it comes to the Internal Revenue Service (IRS), all income is not treated the same. For taxation purposes, the IRS distinguishes between two kinds of income: earned and unearned. Earned income includes the wages, salaries, or tips one gets from employment or self-employment. 

Other types of income, including child support, alimony, retirement income, and disability benefits are all considered unearned income. In short, although disability benefits are income, the way the federal government taxes this income differs from traditional earned income.

Do I Have To Pay Taxes On Disability Benefits?

The Social Security Administration (SSA) reports that only about one third of SSDI recipients ultimately pay taxes on their benefits each year. Virtually no beneficiaries who receive Supplemental Security Income will pay taxes on these benefits, as they are already designated for low-income individuals.

To put it simply, almost all income—including disability benefits—can be subject to taxation. However, whether or not you’ll be required to pay taxes on your disability benefits depends on the following key factors.

Additional Income

You will only be required to pay federal taxes on your disability income if your total income exceeds the threshold limit set by the federal government. You can calculate your total income by adding half the amount of your disability benefits to any additional income. The current threshold if you file individually is $25,000 annually.

The portion of your disability income that is subject to taxation depends on by how much your total income exceeds the federal threshold. If your total income is between $25,000 and $34,000, you can expect a maximum of 50% of your disability income to be considered taxable. If your total income exceeds $34,000, up to 85% of your disability benefits may be taxable. 

Marital Status

If you are married and/or are filing jointly, you are subject to a slightly higher income threshold of $32,000 annually between you and your spouse. When filing jointly, you may still only count half of your disability benefits towards your total income.

If you and your partner have a total income between $32,000 and $44,000, up to 50% of your disability income may be taxed. If you and your partner’s total income exceeds $44,000, as much as  85% of your SSDI benefits may be taxed.

Note: The amount of tax you’ll actually pay on your disability benefits (and additional income) is determined by your marginal tax rate. For example, an individual whose total income is mid-range (between $25,000 and $34,000) would likely only pay between a 15% to 25% tax rate on benefits, while those earning above $34,000 could possibly pay a 35% tax rate on their benefits. 

Where You Live

Your state’s tax laws have some bearing on whether or not you’ll pay taxes on your SSDI benefits. While many states automatically do not tax social security, thirteen states have exceptions to this rule. Generally speaking, these taxes act similarly with regard to federal income thresholds.

Need Help With Social Security Disability Benefits?

Knowing what to expect when it comes to disability and taxes can be confusing. Our social security disability advocates have years of experience assisting clients in obtaining the disability benefits they deserve. 

For more on the ultimate disability secrets the Social Security Administration doesn’t want you to know about and how to get the most monthly compensation for your disability, contact Social Security Disability Advocates USA. 

Not sure how to check on your SSDI application status? We’ve got you covered. You can reach us by phone at 602-952-3200, visit our office during regular business hours, chat online with an representative, or submit the details of your case using our secure contact form.

This is attorney advertising. SSDA, LLC is a group of attorneys that pursues claims for Social Security Disability benefits on behalf of its clients against the Social Security Administration. SSDA, LLC is in no way a part of the Social Security Administration. Further, the information on this blog is for general information purposes only. Nothing herein should be taken as legal advice. This information is not intended to create, and receipt or viewing does not constitute, a representative-client relationship.

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