It’s often a topic of debate: Should you pay taxes on government benefits? More importantly, are Social Security benefits taxable? In fact, yes — SSD benefits are taxable. However, most beneficiaries don’t pay taxes on them because they have very little (if any) additional income. Approximately 1 in 4 disability recipients owed federal income taxes in recent years, usually because of their spouse or other household earnings.
How the Social Security Administration Calculates Disability Benefits
Social Security disability insurance (SSDI) covers anyone who worked 5 in the last 10 years that paid FICA taxes. How can you get approved for SSDI benefits? Prove you cannot work due to a physical or mental condition lasting at least 12 months or which may result in your death. Benefits don’t start until five months after you become disabled and submit your application.
Your monthly SSDI income from the Social Security Administration depends on your earnings record. And even though your SSDI benefits come directly from the federal government, they still may be taxable. Read on to learn how monthly disability income is taxed for individuals as well as for joint income-tax returns.
How Taxable Benefits Impact Individual Returns
The SSA states your benefits may be taxed if you file an individual return and your total income’s over $25,000. If you make $25,000-$34,000, you must pay taxes on about 50% of your benefits. If you make more than $34,000, 85% of your benefits are taxable.
How to List Taxable Benefits on Joint Returns
If you file a joint return and your combined income is over $32,000, your benefits may be taxable as well. However, if your income’s $32,000-$44,000, you may owe taxes on half the value of your benefits. If your combined income is more than $44,000, 85% of your benefits may be taxable.
Please understand that “85% of your benefits” does not mean 85% of your benefits will be taken away from you. In fact, all disability income benefits are taxable at the marginal tax rate. That means you’ll probably pay a tax rate of 10-15% on 50-85% of your SSDI income to the IRS annually. (This information is specifically for calculating your yearly federal taxes). Thirteen U.S. states have their own disability benefits income tax system:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
You May Qualify for Legal Assistance
Today, you’re nearly 3x more likely to get approved for benefits the first time you apply with help from a Social Security disability attorney. If you can’t afford to wait nearly two extra years with no income to get much-needed disability benefits, we strongly recommend talking to a lawyer.
All disability lawyers work on contingency. That means you won’t pay a dime for legal advice about your claim, or professional help applying today. If the SSA doesn’t approve your claim, you owe $0 for legal assistance. And if you do win, then you’ll only pay a small, one-time fee.
Ready to see if you may qualify? Click the button below to start your free online benefits evaluation now!
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Lori Polemenakos is Director of Consumer Content and SEO strategist for LeadingResponse, a legal marketing company. An award-winning journalist, writer and editor based in Dallas, Texas, she's produced articles for major brands such as Match.com, Yahoo!, MSN, AOL, Xfinity, Mail.com, and edited several published books. Since 2016, she's published hundreds of articles about Social Security disability, workers' compensation, veterans' benefits, personal injury, mass tort, auto accident claims, bankruptcy, employment law and other related legal issues.
