Are Your Social Security Disability Benefits Taxable? Here is What You Need to Know

Do you receive Social Security Disability (SSDI) benefits? If so, you might wonder if these benefits are taxed. The answer depends on your total income and how you file taxes – alone or with your spouse. Filing taxes can be a stressful endeavor. Here, we will break down Social Security Disability, looking at how it is taxed, who has to pay, how much those payments might be, and how to pay.

How Social Security Disability Is Taxed

The Internal Revenue Service (IRS) treats Social Security Disability benefits the same way as regular Social Security benefits. There is a limit to how much your total income can be before a portion of your disability benefits is taxed. 

Who Has to Pay Taxes on Social Security Disability?

The IRS uses a formula to determine if your benefits are taxable. They look at your combined income, which includes:
  • Half of your Social Security Disability benefits
  • Your other income (such as wages, interest, dividends, pensions, your spouse’s earned income, or other taxable earnings)
If your combined income is above certain limits, part of your Social Security Disability benefits will be taxed. The more you make, the higher taxes you are required to pay; however, if Social Security Disability is your only source of income, you will not owe any taxes. See the chart below to use as a general guide. 
Filing Status Income Level Where Taxes Apply 
Single Above $25,000
Married (Filing Jointly) Above $32,000

How to Pay SSDI Taxes

If you happen to owe taxes on your SSDI benefits, you can choose one of two options:
  1. Pay taxes when you file.
  2. Have taxes withheld. 
You can either pay taxes when you file your yearly tax return each April, or you can ask the Social Security Administration to withhold federal taxes from your monthly checks to avoid paying all your taxes at once each year when you file your return. The benefits of paying taxes when you file includes maintaining a good financial standing through keeping up with tax payments that ensures a clean financial record, which is important for loan or credit applications. Having taxes withheld makes budgeting easier through the automatic tax deductions from your paycheck that prevents a large tax bill when filing, granting less financial stress. Withholding your taxes also ensures that you meet your tax obligations throughout the year. Paying taxes when you file, and having your taxes withheld have the potential for a refund and avoiding penalties. Both options are great, but what is important is choosing the option that suits your situation best.

Are Supplemental Security Income Benefits Taxed?

If you receive Supplemental Security Income (SSI), you do not have to worry about whether your benefits are taxed or not, as they are not taxable. SSI is different from SSDI because SSI is based on financial need, not work history.

Questions? Schedule a Consultation and Learn More

The question of whether your Social Security Disability benefits are taxed depends on your total income. If you do not have other methods of income, or if your additional income is too small for consideration, then the chances are high that you will not owe any taxes on your SSDI benefits. However, if you have additional earnings that reach above a certain limit, part of your benefits may be taxed. You might also wonder if you can deduct your attorney fees. Remember, you only pay more if you make more, but most people who receive SSDI do not have to pay taxes on their benefits. If you are still unsure whether your Social Security Disability benefits are taxable, contact us today to schedule a consultation with one of our attorneys and learn more.