Social Security Disability Insurance (SSDI) is a federal program that provides monthly benefits to those who cannot work because of a disability. To qualify for SSDI benefits, you must prove that you have earned enough through a job or at self-employment and paid sufficient Social Security taxes to qualify for disability benefits. Getting Social Security Disability (SSD) benefits is therefore free from any premiums unlike long-term disability insurance, for which you must pay regular premiums. However, long-term benefits are much larger and far easier to qualify for.
If you are receiving Social Security Disability benefits, you generally do not have to pay any taxes on them unless you earn beyond a given threshold of income as per your tax filing status. Social Security Disability benefits that you receive will be taxed at your normal income tax rate. You must report the total SSD benefit amount on your income tax return through form SSA-1099 that will be mailed to you by the Social Security Administration (SSA) on an annual basis.
However, while Social Security Disability Insurance benefits may be taxable in such a situation, Supplemental Security Income (SSI) benefits are not taxable.
When SSDI Benefits Are Taxable
SSDI benefits are not taxed if you do not earn any income throughout the year. They will also be exempt from taxation if you were disabled by a domestic or international terror attack.
However, if you do earn an income while receiving SSDI benefits, your benefits are taxable when your income exceeds a certain amount specified by the IRS. However, when you earn an income while receiving SSDI benefits, your benefits will be subjected to taxation in case your total income exceeds the threshold set by the SSA. The IRS specifies the following threshold for this purpose:
- $25,000 for individuals, heads of household, qualifying widows or widowers, or married couples filing separately and who live apart from each other.
- $32,000 for married couples who file a joint return, even if one of the spouses does not receive Social Security benefits.
- Nil for married couples who live together but file separately.
When you calculate your income, it includes 50% of your disability benefits, unearned income like non-exempt interest and dividends and your spouse’s income.
What Part Of SSDI Benefits Is Taxable?
When your SSDI benefits are taxed, you will be paying income tax only on a part of the income and not on your entire benefits. There are two methods of calculating tax liability on your SSDI benefits, depending on your income and filing status.
When filing as an individual:
- Up to 50% of your Social Security Disability Insurance benefits will be taxed if your income is between $25,000 to $34,000.
- Up to 85% of your income from SSDI benefits will be subjected to taxation in case your income exceeds $34,000.
If you are married and file a joint return:
- Up to 50% of your Social Security Disability Insurance will be subject to taxation if your combined income is between $32,000 and $44,000.
- Up to 50% of your SSDI benefits will be taxable when your income exceeds $44,000.
Reporting SSDI Benefits On Your Tax Return
Every January, the SSA will send you a Social Security benefits statement, known as form SSA-1099 through mail if you are receiving SSDI benefits during the year.
Box-4 on Form SSA-1099 shows the net Social Security Disability benefits that you received in the entire year, that is, the difference between your benefits and any benefits that you had to repay during the relevant year. And when you file your tax return, you report the amount in Box 5 on Form 1040 (line 6).
Are SSDI Benefits Taxable By The IRS In California
Taxation of disability benefits is a complicated subject because both state and federal governments dole out disability benefits, and taxation agencies at both levels may make rules for taxing your benefits. The federal government does not tax short-term disability benefits in California unless they serve as a substitute for unemployment insurance.
However, Social Security Disability Insurance benefits will be taxed by the IRS subject to other income. The benefits are, of course, taxable but if you and/ or your spouse earn less than a certain amount as explained earlier, the federal government will not tax them.
On the other hand, if you collect disability benefits through the Supplemental Security Income (SSI) program administered by the SSA, you will not be subjected to taxation by any agency.
Contact An Experienced SSDI Benefits Lawyer At Sackett Law Today
If you are a California resident who is worried about taxation on disability benefits by the IRS, you must take it seriously and speak with an experienced SSDI benefits lawyer at Sackett Law. Contact Sackett Law today for a free consultation and case review.