We’re often asked about whether our clients’ Social Security disability insurance (SSDI) benefits are taxable. The answer is that it depends on your income and tax filing status.
The bottom line is that most recipients of SSDI benefits won’t have to pay taxes because they aren’t able to work because of their medical condition and because Social Security limits how much you can work and still qualify for benefits.
Your SSDI Benefits May Be Subject to Federal Tax
SSDI benefits can be subject to federal tax if you have other income that places you above a certain threshold. That said, most recipients do not pay taxes on their benefits because they don’t have that additional income.
Whether your SSDI benefits are taxed will depend on your total income. The Internal Revenue Service (IRS) states that SSDI benefits become taxable when one-half of your disability benefits, plus all of your other income (including wages, self-employment, interest, dividends, and your spouse’s income), exceeds an income threshold based on your tax filing status. These thresholds have not changed since 1983.
Fifty percent of your Social Security disability benefits may be taxable if:
- You file as single, as head of household, as a qualifying widow(er), or as married but filing separately and have an income between $25,000 and $34,000
- You are married and file jointly and have an income between $32,000 and $44,000
Up to 85% of your Social Security disability benefits may be taxable if:
- You file as single, as head of household, or as a qualifying widow(er) and have more than $34,000 in income
- You are married and file jointly and have more than $44,000 in income
- You are married and file separately because you lived apart from your spouse for all of the prior tax year and have more than $34,000 in income
- You are married and file separately and lived with your spouse at any time during the prior tax year
The IRS has a calculator tool that you can use to determine whether your SSDI benefits will be taxable.
When we say that up to 85% of your Social Security disability benefits might be taxable, that doesn’t mean they’re taxed at a rate of up to 85%. The tax rate is likely to be between 15 and 35%, the same rate that’s used for your other income.
Also, if you receive back payments of your SSDI for a period when you had filed for benefits but those benefits were not yet approved, you can apply the benefits owed during a prior tax year to that prior tax return, so your income for the year that you receive a lump sum payment will be lower. You’ll likely need the help of a professional, whether a lawyer or accountant, to help you if you’re in this situation.
Note that supplemental security income (SSI) or benefits that you receive on behalf of a dependent are not taxable.
Most States Don’t Tax SSDI Benefits
On top of federal tax, some states tax SSDI benefits, but most do not. Thirteen states do tax disability benefits:
- New Mexico
- North Dakota
- Rhode Island
- West Virginia
Fortunately, North Carolina and Virginia aren’t among them.
Are You Confused About Your SSDI Benefits?
Navigating the Social Security disability benefits process can be confusing and stressful. A lawyer with experience in handling these complicated disability matters can offer assistance as you navigate this process.