The Social Security Administration (SSA) provides Social Security Disability Insurance (SSDI) benefits to certain individuals who are unable to work as a result of a disabling mental or physical condition. Disabled individuals rely on these benefits to cover their living expenses and medical bills.
If you are currently receiving SSDI, it’s important to understand whether you will have to pay taxes on these monthly benefits. A Tampa Social Security attorney can provide information on what to expect after you are approved for benefits. But in general, here is what you need to know about paying taxes on SSDI:
Who is Eligible For SSDI Benefits?
Before learning how SSDI benefits are taxed, it’s important to understand who is eligible for this program. To qualify for SSDI benefits, you must:
- Meet the SSA’s definition of disabled, and
- Have a certain number of work credits.
You will meet the SSA’s definition of disabled if you have a mental or physical condition that:
- Prevents you from working, and
- Has lasted for at least 12 months or is expected to result in death or last for at least 12 months.
Being disabled does not mean you will automatically qualify for benefits. You must also have a certain number of work credits in order to qualify. You earn work credits simply by working and earning an income. You can earn a maximum of four work credits per year.
The number of work credits that you will need to qualify for benefits will depend on the age you first became disabled. For example, someone who is 40 years old will only need 20 credits to qualify, whereas someone who is 50 years old will need 28. If you are 62 years of age or older, you will need 40 work credits to qualify.
If you meet these two conditions—being disabled and having enough work credits—you will qualify for SSDI benefits.
Will You Have to Pay Taxes On SSDI Benefits?
SSDI benefits are taxable, but only under certain circumstances. Most people will not have to pay taxes on their SSDI benefits. But if you are receiving SSDI, you need to know when this income becomes taxable so you know what to expect.
When Are SSDI Benefits Taxed?
Whether or not your SSDI benefits are taxed will depend on your income. For this purpose, your income is equal to your adjusted gross income plus half of your annual Social Security benefits. For example, say your adjusted gross income is $20,000 and you receive $12,000 per year in SSDI benefits. In this example, your income would be $26,000.
After calculating your income, take a look at these charts to determine whether or not your SSDI benefits will be taxed, and if so, what portion will be taxed. Use this chart if you are single:
|Max. Portion of SSDI Benefits Taxed|
Up to $25,000
$25,000 to $34,000
Use this chart if you are married and filing jointly:
|Max. Portion of SSDI Benefits Taxed|
Up to $32,000
|$32,000 to $44,000|
For example, if you are single and your annual income is under $25,000, you will not need to pay taxes on SSDI benefits. But if your income is between $25,000 to $34,000, you will need to pay taxes on up to 50% of your SSDI benefits. If your income is over $34,000, you will need to pay taxes on up to 85% of your SSDI benefits.
If you are married, filing a joint return, and your annual income is below $32,000, you will not need to pay taxes on SSDI benefits. You will have to pay taxes on up to half of your SSDI benefits if your income falls between $32,000 and $44,000. If your income is over $44,000, you will need to pay taxes on up to 85% of your SSDI benefits.
At What Tax Rate Are SSDI Benefits Taxed?
If your SSDI benefits are taxable, they will be taxed at your marginal income tax rate. This means your SSDI benefits will be taxed at the same rate that your other income is taxed. Marginal income tax rates are 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on your household’s income.
Is SSDI Backpay Taxable?
Many people who are approved for SSDI benefits receive a lump sum backpay payment. This payment is made to compensate disabled individuals for the months they were disabled but not receiving SSDI benefits.
This lump sum payment may be rather large, which can drastically increase your taxable income and tax bill. Fortunately, there is a way to ensure you don’t have to spend a significant portion of your backpay on taxes.
You have the option of applying a portion of your SSDI backpay to a tax return from a previous year in order to lower your taxable income for the current year.
For example, say you received backpay for 18 months in January 2020. This lump sum payment will all count towards your 2020 income unless you amend your tax returns from 2018 and 2019 to claim a portion of this income. Doing this would ensure that the entire lump sum payment does not count towards your 2020 income, so it would help you reduce the amount of taxes owed.
Amending prior tax returns is tricky, so if you want to make this change, it’s best to reach out to an accountant for assistance.
Seek Legal Representation From A Skilled Attorney Today
Do you have questions regarding your SSDI benefits? Are you disabled and in the process of applying for SSDI benefits? Has your application for SSDI benefits been denied? If you answered “yes” to any of these questions, contact the skilled Social Security disability attorneys at Carlson Meissner Hart & Hayslett today. Let us answer your questions, address your concerns, and ensure you are awarded the SSDI benefits you deserve.