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Filing Taxes When You’re Collecting Disability

If you are collecting disability income, it is crucial to know whether or not you have to pay taxes on this income. The answer, however, is not completely straightforward, yet it depends on numerous factors.

What is Disability Income?

Disability income is a financial benefit that provides supplementary income to qualifying persons who are unable to work due to a disability and meet certain medical criteria. Disability income can come from either the government or the private sector. Private sector disability income is referred to as disability insurance. The tax rules for both of these sources differ, but we will be focusing solely on Federal disability programs from the Social Security Administration (SSA).

Social Security Disability Programs

The Social Security Administration manages two government disability programs:

  • Social Security Disability Insurance (SSDI) is an earning-based benefit program that supports disabled individuals (and certain family members) with qualified work history. This program is fully funded by payroll taxes withheld from the worker’s paychecks or self-employment checks.
  • Supplemental Security Income (SSI) is a need-based benefit program that supports disabled adults (65 and over) and disabled adults and children with limited income, assets, or resources. This program is funded by General Revenues.

You can learn more about these two Federal benefits programs, and their differences, in our recent blog, here.

Is My Disability Income Taxable?

The short answer is it depends. IRS regulations have varying rules on tax liabilities for different types of disability benefits.

Tax Considerations for Social Security Disability Income

Generally, Supplemental Security Income is not taxable.

It is a little more complicated for SSDI beneficiaries. SSDI must be reported on your tax return. However, SSDI beneficiaries do not always have to pay federal income taxes on their disability income. The rules are as follows:

You must pay taxes on your Social Security disability benefits if you 1.) file as an individual and you have more than $25,000 of combined income, or 2.) you file jointly and your combined income with your spouse is greater than $32,000. Combined income is your adjusted gross income, any tax-exempt income, and half of your Social Security benefits. If you are married and file a separate tax return, it is likely that you will have to pay federal income taxes on your Social Security benefits.

If you do have to pay taxes on your Social Security benefits, it’s important to note that you will never pay taxes on more than 85% of your benefits.

If you fall into the first category as a single filer and have a total income between $25,000 and $34,000, you may only be responsible for paying income tax on up to 50% of the Social Security benefits you receive. If your income falls over $34,000, you may have to pay taxes on up to 85% of your benefits.

If you fall into the second category as a joint filer and you and your spouse’s combined total income falls between $32,000 and $44,000, you may only be responsible for paying taxes on 50% of the Social Security benefits you receive. If you and your spouse’s combined total income is more than $44,000, then up to 85% of your benefits may be taxable.

Can Taxes Be Withheld on Disability Income?

The short answer is yes.

To withhold taxes from your SSDI or SSI, you can request that the SSA withhold taxes when you first initially apply for benefits. If you do not do this, you can do so later by completing Form W-4V.

Contact Walner Law to Learn More About Filing Taxes on Your Disability Benefits.

Filing taxes is often a complicated subject on its own and can be even more so when disability benefits are involved. Jon Walner is here to make sure you understand your tax obligations as a disability beneficiary. If you’re looking for an experienced and skilled Social Security Disability lawyer, contact Walner Law for a free consultation.