One of the more common questions asked of Social Security Disability representatives is “Are my SSDI payments taxable?” The answer, quite simply, is that it depends on your total income. For most people, if Social Security Disability benefits payments represents your only income, you will not be subject to federal income taxes.
If, however, you have other income, either from your spouse or from passive income such as rent and investment income, you may be subject to taxation of part of your Social Security Disability benefits. The factors considered are whether you are married and what your total (combined, if married) income is.
If you’re single and your only income comes from your Social Security Disability benefits, you won’t need to worry about federal income tax. If you have other sources of income, your Social Security Disability Insurance (SSDI) benefits will be taxable if your total income (including your SSDI payments) is greater than $25,000 per year. Fortunately, though, you won’t have all of your benefits amount taxed. It breaks down like this, for single people:
- Individuals making more than $25,000 but less than $34,000 are subject to taxation on half of their Social Security Disability benefits.
- Individuals making more than $34,000 are subject to taxation on 85% of the Social Security Disability benefits.
For those who are married, your wife’s income is considered. Filing separately doesn’t help you, either, as your Social Security Disability Insurance payments will be taxed at the higher rate if you choose to file separately. Filing separately may, in certain instances, still be to your advantage because of how your income could affect your spouse’s tax liability. Check with a qualified accountant or lawyer before making the decision on whether or not to file separately.
If you are filing together, your Social Security Disability benefits are taxable if your joint income is higher than $32,000. As with single individuals, this includes all forms of income. The breakdown for married couples in which one or both of you are collecting Social Security Disability is as follows:
- Couples making more than $32,000 but less than $44,000 are subject to taxation on half of their Social Security Disability benefits.
- Couples making more than $44,000 are subject to taxation on 85% of their Social Security Disability benefits.
Individuals or couples who receive SSI payments do not need to worry about federal income tax because, in order to qualify for SSI, your income must be low enough that you would be exempt from taxation anyway.
Lump sum payments, such as the back pay often received when your Social Security Disability benefits are first approved, are subject to taxation in the year in which you receive them (not the years for which the benefits were granted). However, there are regulations which offset this somewhat by ensuring that you are taxed at the same rate you would have been if you had been receiving the benefit payments all along. Unless you have extensive tax knowledge, you would be well advised to seek the help of an accountant for the year in which you receive your back pay or any other sizable lump sum Social Security disability benefit payment.