Are SSD Benefits Taxable?

The answer to whether Social Security Disability benefits are taxable depends on a few important factors. First, it depends on which type of Social Security Disability benefit. Supplemental Security Income (SSI) benefits are not taxable, while Social Security Disability Insurance (SSDI) benefits are subject to tax.

Whether a SSDI recipient would in fact pay taxes on his or her SSDI benefits depends on how much income the disability recipient makes in general. Most SSDI recipients do not make much income outside of what they receive in SSDI benefits, and as a result do not end up paying income tax on their SSDI benefits. However, about a third of SSDI benefits do pay some taxes on their SSDI benefits because they have a higher total income.

Federal tax on SSDI benefits

How SSDI benefits are subject to federal tax is related to a disability recipient’s income and marital status . Below are charts with monthly income amounts to explain whether and how much SSDI benefits may be taxed. Keep in mind that these charts explain the share of the person’s benefits that would be subject to tax, and that the share of those benefits would be taxed at the marginal income tax rate.

Single SSDI recipient

If the SSDI recipient is single and has an income that is greater than $25,000 per year, a portion of his or her SSDI benefits will be subject to tax.

 

Monthly Income Share of SSDI Benefits to be Taxed
$0-$2,083 None
$2,084-$2,833 Half of SSDI benefits will be taxed
$2,834 and up 85% of SSDI benefits will be taxed

 

Married SSDI recipient

If the SSDI recipient is married, files taxes jointly with his or her spouse, and combined the couple has an income that is greater than $32,000 per year, a portion of the recipient’s SSDI benefits will be subject to tax.

Monthly Income Share of SSDI Benefits to be Taxed
$0-$2,666 None
$2,667-$3,666 Half of SSDI benefits will be taxed
$3,667 and up 85% of SSDI benefits will be taxed

       

State tax on SSDI benefits

Most states do not tax SSDI benefits, however a number of states do including: Connecticut, Colorado, Iowa, Kansas, Montana, Minnesota, Nebraska, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

Tax on Social Security Disability backpay

When large lump-sum back payments of SSDI benefits are made to recipients for the months the recipient was disabled but not yet approved for benefits, these sums increase the amount of income a recipient earns in the year they are received. This can cause disability recipients to pay a larger amount in taxes than they should in that year.

As a result, disability recipients are allowed to apply the benefits owed from a previous year to prior tax returns, which lowers their income in the year the sum was received. If this applies to you, consider consulting an experienced attorney for more help with this issue.

The Law office of Neil H. Good has over 25 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 #866-352-5239 or complete this form online.

By |2015-12-28T10:25:59+00:00December 28th, 2015|Blog|Comments Off on Are SSD Benefits Taxable?