Do I Owe Tax on My Disability Benefits?

On Behalf of | Mar 16, 2022 | Social Security Disability |

Spring is in the air, which means we can expect rain showers and flowers. And, of course, it also means it’s time to pay the tax man.

If you’re receiving Social Security disability benefits, you’re probably wondering what the tax consequences are for you. Below we tackle how federal and state taxes may affect you.

How federal taxes affect disability payments

Let’s start with an easy one. Supplemental Security Income (SSI), which is provided for low-income individuals, is not taxed.

It gets more complicated with Social Security disability benefits (SSDI), which are based on your work history. SSDI benefits can be subject to tax.

Your tax liability will depend on your total household income. About a third of Social Security disability recipients owe tax on their benefits, often because their spouse or household has other income. However, most recipients don’t pay tax on their disability income because they don’t have other sources of income.

Here’s how it works

Whether your Social Security disability benefits are taxed will depend on your total income. Your total income is determined by adding one-half of your disability benefits to all other sources of income, including tax-exempt interest.

If you fall in one of these two categories, you aren’t subject to federal tax on your disability benefits:

  • Single with an annual income below $25,000
  • Married, filing jointly, with an annual income below $32,000

Approximately 50% of your benefits will be taxed if you are in one of these two categories:

  • Single with an annual income between $25,000 and $34,000
  • Married, filing jointly, with a combined annual income between $32,000 and $44,000

Approximately 85% of your benefits will be taxed if you meet either of these criteria:

  • Single with an annual income over $34,000
  • Married, filing jointly, with a combined annual income over $44,000

Back payments

Some forms of disability benefits result in a lump-sum back payment. The Social Security Administration often makes a back payment for the time when someone was disabled but not yet receiving payments as well as death payments for the survivor of a worker receiving benefits. Lump-sum payments cause an increase in income that can result in a higher tax bracket. To avoid this, you may be able to apply some of the back payments to previous tax years, which can lower your tax payments for the current year.

How state taxes affect disability payments

Most states, including North Carolina and Virginia, do not tax Social Security disability benefits. The following states do tax disability benefits in certain instances: Connecticut, Colorado, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Where to get help if you have questions about taxes and your disability benefits

If you need help understanding the federal or state tax consequences for your Social Security disability benefits, Hunter & Everage is here to help, with experienced disability lawyers in Richmond, Virginia, and Charlotte, North Carolina.

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