When you cannot work and receive Social Security disability benefits, you may wonder about income taxes. You may be required to file an income tax return and pay taxes depending on your income for the year and your filing status.
This article explains how the tax laws treat disability benefits and the circumstances when you need to file taxes on SSD. Most of the information applies to recipients of benefits through the Social Security Disability Insurance program because Supplemental Security Income is not taxable, and SSI beneficiaries typically do not have enough income to require them to file an income tax return.
How Does SSDI Work?
When a medically determinable physical or mental health impairment prevents you from working and has lasted or is expected to last for at least 12 months or result in death, you may be eligible for SSDI benefits. You must have a work history of long enough duration to be eligible for the program.
How much you receive as a monthly payment through SSDI depends on your average lifetime earnings. The maximum monthly benefit you can receive in 2023 is $3,627. According to the federal government, the average monthly SSDI benefit in 2023 is $1,483. Regardless of the amount you receive in disability benefits, the Social Security Administration reports it to the Internal Revenue Service on an SSA-1099 form and sends you a copy.
Just because you receive an SSA-1099 from the Social Security Administration does not mean you owe taxes on your benefits. You may not owe income taxes or owe taxes on only a portion of the benefits. It depends on your total income and filing status for the tax year.
Do You Have To File Taxes On SSD?
If disability benefits from Social Security are all the income you receive during the year, you would not generally owe income taxes. However, SSDI beneficiaries may have other sources of income that, when combined with their disability benefits, require that they file tax returns to report the income and pay any taxes that may be owed.
To determine whether you have to file taxes on SSD, take one-half of your SSDI benefits as shown on the SSA-1099 that you receive and add it to the total income you got from other sources, including:
- Income received from employers.
- Self-employment income.
- Dividends on investments.
- Interest and tax-exempt interest.
The result is your base amount of income, which is used along with your filing status to determine whether you owe income taxes.
Base Income And Filing Status
When calculating the base income to determine your base income, you must include the income and one-half of the Social Security disability benefits of your spouse. Your filing status has a base income amount associated with it, and you do not owe taxes on the income as long as you do not exceed the base for your filing status.
The following are filing statuses and the base income amounts for each:
- Single, qualifying surviving spouse, or head of household: $25,000.
- Married filing separately and living apart from your spouse for the tax year: $25,000.
- Married filing jointly: $32,000.
- Married filing separately but lived with your spouse during the tax year: $0.
Even though your income for the year means that you must pay income taxes, only a portion of your SSDI benefits is taxed, depending on your income and filing status.
If your filing status is single, head of household, or qualifying surviving spouse, you only pay taxes on 50% of the disability benefits provided your base income does not exceed $34,000 and 85% if it does. If you’re filing a joint return with a spouse, you pay taxes on 50% of the disability benefits as long as your income does not exceed $44,000 and on 85% of the benefits if your base income exceeds $44,000.
What Options Do You Have When You Owe Taxes On Your Disability Benefits?
It can come as quite a shock when you are unaware of how the tax laws work to learn that you owe taxes on Social Security disability benefits. If writing a check for the taxes is not an option, file your income tax return by the due date to avoid penalties for failing to file or late filing, even if you cannot afford to pay the taxes.
You can request an installment payment plan when you cannot pay all your taxes. As long as the taxes you owe do not exceed $25,000, you can submit IRS Form 9465, a request for an installment payment agreement that lets you take up to five years to pay what you owe. Interest and fees apply, so review the installment agreement application carefully.
One way to avoid having problems at tax time is by arranging to have federal taxes withheld from your disability benefits each month. You also can make quarterly estimated tax payments during the year to avoid owing taxes.
Speak To A Disability Lawyer
The Sackett and Associates have been the disability lawyers that people throughout California have come to rely upon for advice and representation in all Social Security disability matters for more than 44 years. Contact us today for a free consultation.