Social Security disability benefits (SSDI) are taxable but most people do not end up paying taxes on the money they receive because they don’t have much more income. There are some scenarios where you may have to pay taxes on Social Security disability benefits, especially if your family has additional income that pushes you over the limit. It may also behoove you to consult with a financial advisor as you navigate the complicated terrain of taxes on Social Security disability benefits.
Understanding What Social Security Disability Is
The Social Security Disability Insurance program (SSDI) pays benefits to eligible people who have become disabled. To be considered eligible for Social Security disability benefits, you have to be “insured”, which means you worked long enough and recently enough to accumulate benefits based on your Social Security taxes paid.
You also have to meet the Social Security Administration’s definition of disabled. To be considered disabled, it would have to be determined that you can no longer do the kind of work you did before you became disabled and that you won’t be able to do any other type of work because of your disability. Your disability must have lasted at least 12 months or be expected to last 12 months.
Social Security disability benefits are different from Supplemental Security Income (SSI) and Social Security retirement benefits. SSI benefits are paid to people who are aged, blind or disabled and have little to no income. These benefits are designed to help meet basic needs for living expenses. Social Security retirement benefits are paid out based on your past earnings, regardless of disability status.
Supplemental Security Income generally isn’t taxed as it’s a needs-based benefit. The people who receive these benefits typically don’t have enough income to require tax reporting. Social Security retirement benefits, on the other hand, can be taxable if you’re working part-time or full-time while receiving benefits.
Is Social Security Disability Taxable?
This is an important question to ask if you receive Social Security disability benefits and the short answer is, it depends. For the majority of people, these benefits are taxable but they don’t end up having to pay a tax on them. But you may pay a tax on your Social Security disability benefits if you’re also receiving income from another source or your spouse is receiving income.
The good news is, that there are thresholds you have to reach before your Social Security disability benefits become taxable. So, if these benefits are your sole source of income then you likely won’t have to worry about it. You’ll generally have a tax owed on the benefits if your annual income is over $25,000 as an individual or over $32,000 as a married couple.
When Is Social Security Disability Taxable?
The IRS says that Social Security disability benefits may be taxable if one-half of your benefits, plus all your other income, is greater than a certain amount which is based on your tax filing status. Even if you’re not working at all because of a disability, other income you’d have to report includes unearned income such as tax-exempt interest and dividends.
If you’re married and file a joint return, you also have to include your spouse’s income to determine whether any part of your Social Security disability benefits are taxable. This is true even if your spouse isn’t receiving any benefits from Social Security.
The IRS sets the threshold for taxing Social Security disability benefits at the following limits:
- $25,000 if you’re single, head of household, or qualifying widow(er),
- $25,000 if you’re married filing separately and lived apart from your spouse for the entire year,
- $32,000 if you’re married filing jointly,
- $0 if you’re married filing separately and living with your spouse at any time during the tax year.
This means that if you’re married and file a joint return, you can report a combined income of up to $32,000 before you’d have to pay taxes on Social Security disability benefits. There are two different tax rates the IRS can apply, based on how much income you report and your filing status.
If you’re single and file an individual return, you’d pay taxes on:
- Up to 50% of your benefits if your income is between $25,000 and $34,000
- Up to 85% of your benefits if your income is more than $34,000
If you’re married and file a joint return, you’d pay taxes on:
- Up to 50% of your benefits if your combined income is between $32,000 and $44,000
- Up to 85% of your benefits if your combined income is more than $44,000
In other words, the more income you have individually or as a married couple, the more likely you are to have to pay taxes on Social Security disability benefits. In terms of the actual tax rate that’s applied to these benefits, the IRS uses your marginal tax rate. So you wouldn’t be paying a 50% or 85% tax rate; instead, you’d pay your ordinary income tax rate based on whatever tax bracket you land in.
It’s also important to note that you could be temporarily pushed into a higher tax bracket if you receive Social Security disability back payments. These back payments can be paid to you in a lump sum to cover periods where you were disabled but were still waiting for your benefits application to be approved. The good news is you can apply some of those benefits to past years’ tax returns retroactively to spread out your tax liability. You’d need to file an amended return to do so.
Is Social Security Disability Taxable at the State Level?
Besides owing federal income taxes on Social Security disability benefits, it’s possible that you could owe state taxes as well. As of 2022, 12 states imposed some form of taxation on Social Security disability benefits. The 12 states where your disability benefits might be taxed, under some situations, are:
States That Tax Disability Benefits
Each state applies the tax differently. Nebraska and Utah, for example, follow federal government taxation rules. But other states allow for certain exemptions or exclusions and at least one state, West Virginia, plans to phase out Social Security benefits taxation by the end of the year. If you’re concerned about how much you might have to pay in-state taxes on Social Security benefits, it can help to read up on the taxation rules for where you live.
How to Report Social Security Disability Benefits Taxes
If you received Social Security disability benefits, those are reported in Box 5 of Form SSA-1099, Social Security Benefit Statement. This is mailed out to you each year by the Social Security Administration.
You report the amount listed in Box 5 on that form on line 5a of your Form 1040 or Form 1040-SR, depending on which one you file. The taxable part of your Social Security disability benefits is reported on line 5b of either form.
Social Security disability benefits are taxable, but you may not owe taxes on them if you have less income than the set thresholds. If you’re worried about how receiving disability benefits while reporting other income might affect your tax bill, talking to a tax professional can help. They may be able to come up with strategies or solutions to minimize the amount of taxes you’ll end up owing.
Tips on Taxes
- A financial advisor could help you make the most of your Social Security disability benefits and other income. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- While you don’t have to reach a specific age to apply for Social Security disability benefits or Supplemental Security Income benefits, there is a minimum age for claiming Social Security retirement benefits. A Social Security calculator can help you decide when you should retire.
Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/JannHuizenga, ©iStock.com/AndreyPopov