Are social security disability payments taxable income

If you’re thinking of applying for Social Security disability insurance (SSDI) benefits, you may be wondering if these benefits are considered taxable income. Your tax liability will depend on your total household income. However, only about one-third of all SSDI recipients owe taxes on their benefits. 

SSDI and Federal Taxes

As of 2020, SSDI payments are considered taxable for individuals who have over $25,000 in yearly income or married couples with over $32,000 in yearly income. (Your income is one-half of your SSDI benefit plus the full amount of any other sources of household income.) If you are single and have no other sources of income or married with a spouse who either works in a low-paying position or does not work full time, you will likely owe no taxes for your SSDI benefits.

If your household income is high enough to owe taxes, only a percentage of your SSDI benefits will be subject to tax. Benefits are either 50% or 85% taxable, depending on your total household income. If your benefits are taxable, they are taxed at your marginal tax rate—not the 50% or 85%. Marginal tax rates are based on your income but are typically between 15% and 25%.

While your monthly benefit may not be taxed, it’s important to consider that a large back pay award will bump up your yearly income. This means, you could owe taxes for the year when you are first approved for benefits, then have your tax liability eliminated in the following years.

To avoid any unpleasant surprises, it’s a smart move to speak to a qualified accountant who can review your personal finances and help you take any steps that are recommended to minimize your tax liability.

SSDI and State Taxes

Virginia, like most states, does not tax SSDI payments. SSDI is considered a form of early retirement, and Social Security retirement benefits are also provided free of tax liability.

Have You Or A Loved One Been Denied Social Security Disability Benefits?

If you or a loved on has been denied Social Security Disability Benefits you need to speak with an experienced SSD attorney as soon as possible. Please contact us online or call our Virginia Beach office directly at 757.490.3500 to schedule your free consultation. We have offices throughout Virginia including Chesapeake, Newport News, Norfolk and Suffolk.

Related links:

• Determining Your Disability Onset Date
• How the SSA Determines If You Can Do Other Types of Work
• Social Security Disability and Your Retirement Benefits

Up to 50% or even 85% of your Social security benefits are taxable if your “provisional” or total income, as defined by tax law, is above a certain base amount. Your Social Security income may not be taxable at all if your total income is below the base amount.

If you’re married and filing jointly with your spouse, your combined incomes and social security benefits are used to figure your total income.

When Is Social Security Income Taxable?

To determine when Social Security income is taxable, you’ll first need to calculate your total income. Generally, the formula for total income for this purpose is: your adjusted gross income, including any nontaxable interest, plus half of your Social Security benefits.

If you’re married and filing jointly with your spouse, your combined incomes and social security benefits are used to figure your total income.

Then you’ll compare your total income with the base amounts for your filing status to find out how much of your Social Security income is taxable, if any.

You’ll see that you fall into one of three categories. If your total income is:

• Below the base amount, your Social Security benefits are not taxable.
• Between the base and maximum amount, your Social Security income is taxable up to 50%.
• Above the maximum amount, your Social Security benefits are taxable up to 85%.

How Much of Your Social Security Income is Taxable?

Review the list below to determine where your total income falls and how much of your Social Security income is taxable. For:

• Single, Head of Household or Qualifying Widow(er), the base amount is $25,000 and the maximum is $34,000.
• Married filing jointly, the base amount is $32,000 and the maximum is $44,000.
• Married filing separately, the base amount is $0 and the maximum is $0. (Note: married filing separate filers who lived apart the entire tax year use the same base and maximum amounts as single filers.)

Are All Kinds of Social Security Income Taxable?

All social security benefits are taxable in the same way. This is true whether they’re retirement, survivors, or disability benefits. Take note that Social Security benefits paid to a child under his or her Social Security number (SSN) could be potentially taxable to the child, not the parent. Note: Supplemental Security Income, or SSI, is a non-taxable needs-based federal benefit. It is not part of Social Security benefits and does not figure into the taxable benefit formula.

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