One of the first questions people have when they’re approved for social security disability (SSD) benefits is: Will I have to pay federal taxes on my SSD benefits? The answer depends on the type of social security disability benefits received and the recipient’s other income.
SS disability benefits
There are two types of SS disability benefits, social security income (SSI) and social security disability insurance (SSDI). SSI benefits are based on the recipient’s income level and are not taxable.
SSDI benefits, on the other hand, are paid based on a finding that the recipient has a disability that is expected to last more than a year or result in their death and leaves them unable to participate in substantial gainful activity. For 2022, the Social Security Administration considers an individual to be participating in substantial gainful activity if they earn more than $1,350 per month ($2,260 if the individual is blind). SSD benefits may be taxable, depending on the recipient’s marital status and income.
Federal taxes and SSD benefits
Social security disability benefits may be subject to federal income tax if the combined total of
1) one-half of your disability benefits and
2) all other income, including tax-exempt interest
3) exceeds the base amount for your filing status.
This means that only one-half of your SSD benefits are considered potentially taxable; for example, if you receive $1,350 a month in disability benefits, only $675 of those benefits will count toward determining your base amount for income tax purposes. “All other income” includes any income your spouse earned during the tax year.
What’s the base amount of your filing status? For 2022, the amounts are as follows:
|Filing Status||Base Amount|
|Head of household||$25,000|
|Married, filing separately, AND lived apart from spouse for the entire tax year||$25,000|
|Married, filing jointly||$32,000|
|Married, filing separately, AND lived with spouse for any portion of the tax year||$0|
If your income exceeds the base amount that corresponds to your filing status, the tax rate the IRS applies depends on how much your annual income exceeds the base amount. For single filers with an annual income between $25,000 and $34,000, up to 50% of your SSD benefits may be included in your taxable income. That amount increases to 85% if you earn more than $34,000.
If you’re married and filing jointly, the income thresholds increase, though the percentages remain the same. For a couple whose combined income is between $32,000 and $44,000, up to 50% of the recipient’s disability benefits are taxable. That percentage rises to 85% if your combined income is greater than $44,000.
State tax and SSD benefits
Thirty-seven states, plus Washington, D.C., do not impose income tax on social security disability benefits. That means 13 states do. Those states are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
Federal taxes and SSD backpay
Whether due to backlogs at social security offices or because your application went through the appeals process, applicants often wait months – sometimes even years – before begin receiving social security disability benefits. When this happens, recipients receive a one-time, lump-sum payment for the months the SSA finds they were disabled but not yet receiving benefits. This means that in the year the lump sum payment is received, the recipient’s income will likely exceed the base filing amount.
Fortunately, the IRS does not penalize social security disability recipients who receive disability backpay. Instead, SSD beneficiaries who receive a lump sum payment can apportion this payment to prior tax years. Each year Social Security sends SSD beneficiaries Form SSA-1099. When a lump sum payment is received, Box 3 of the form should list the amount of the lump-sum payment that was accrued for each previous year, dating back to your disability onset date. The amount listed for the current tax year is the amount used to determine your base filing amount.
You will also need to account for the back pay apportioned to previous tax years on your current tax return (the IRS does not require that you file an amended return for the prior years; you can do it all on the same tax form). The rules can be somewhat confusing, so we recommend you consult a tax professional to help you if you receive disability backpay.
The Good Law Group has over 30 years of experience in Social Security Disability Law. If you are applying for SSDI benefits or have been denied SSDI benefits, contact our office for a free case evaluation. You can call #(847) 577-4476 or complete this form online.