Social Security Disability Insurance (SSDI) is a government-provided program that provides benefits to individuals who are unable to work due to a disability. The purpose of SSDI is to help those in need. However, many people are confused about whether or not the benefits received are taxable.
If you’re one of those who receive SSDI benefits, you may be wondering whether or not Social Security Disability Insurance is taxable. But don’t worry as we’re here to help you out with this confusion.
Is SSDI (Social Security Disability Insurance) Taxable? It depends. In most cases, Social Security disability benefits aren’t taxable. However, if you receive other income that places you above a certain threshold, you might have to pay taxes on your Social Security disability benefits.
In this blog post, we will discuss the taxability of SSDI and provide clarity for those who receive these benefits.
So, let’s get started!
Is (Social Security Disability Insurance) SSDI Taxable?
It depends. In general, social security disability insurance is not taxable. But you may have to pay taxes on your Social Security disability benefits if you receive income from another source or your spouse receives income that puts you above a certain threshold.
Social Security Disability Insurance is a federal program that provides benefits to people who are unable to work due to a disability. The amount of taxes that you pay on your Social Security Disability Insurance benefits depends on your income level and the type of income you receive from other sources as well as on your filing status.
According to the IRS, you may have to pay taxes if one-half of your benefits, plus all your other income, is more than a certain amount of money, which is based on your tax filing status. Even if you’re not working at all due to a disability, you still have to report unearned income like tax-free interest and dividends.
If you are married and file a joint return, you must also take your spouse’s income into account when determining whether any of your Social Security disability benefits are taxable. Even if your spouse is not receiving any Social Security benefits, this is true.
The following are the limits on when the IRS taxes Social Security disability benefits:
- If you’re single, head of household, or a qualifying widow(er) with dependent children—$25,000
- If you’re married filing jointly—$32,000
- If you’re married filing separately and lived apart from your spouse for the entire year—$25,000
- If you’re married filing separately and lived with your spouse at any time during the tax year—$0.
If your income exceeds these amounts, you may have to pay taxes on a portion of your Social Security disability benefits. The amount of tax you’ll owe is based on the marginal tax rates for your taxable income bracket. There are two different tax rates the IRS can apply if you earn more than these limits for these filing statuses.
If you’re a single filler, you’d pay taxes on:
- Up to 50% of your benefits if your income is between $25,000 and $34,000.
- Up to 85% of your benefits if your income exceeds $34,000.
If you’re married and file a joint return, you’ll have to pay taxes on:
- Up to 50% of your benefits if your combined income is between $32,000 and $44,000.
- Up to 85% of your benefits if your combined income exceeds $44,000.
That means the more income you have individually or together with a spouse, the more likely you are to have to pay taxes on your Social Security disability benefits. The IRS uses your marginal tax rate to determine actual tax rates applicable to these benefits. Thus, you wouldn’t have to pay a 50% tax rate or 85% tax rate, but your ordinary income tax rate depends on the tax bracket you fall into.
Calculating Taxes On Social Security Disability Insurance
To calculate whether your Social Security disability benefits are taxable, the IRS will first add up all your sources of income to get your total combined income. Then, they’ll subtract a base amount, which is different for each filing status. This leaves your taxable income.
If your taxable income is less than the limit for your filing status, your benefits are not taxable. But if your taxable income is more than the limit (which we discussed in the previous section), a portion of your benefits may be taxable.
For example, consider that you’re single and your taxable income from the 2021 tax year includes $12,000 from SSDI benefits and $20,000 from other sources when you file your 2022 tax return. When you combine your other income with half of your SSDI benefits, you will have an income taxable at $26,000. That means you will have to pay taxes on 50% of that amount since it falls between $25,000 and $34,000.
That income ($26,000) puts you in the 12% tax bracket. That means you’ll pay 10% in taxes on the first $9,950 ($10,275 for the 2022 tax year), and then 12% on everything above that.
How To File SSDI On Your Federal Tax Return
If you receive SSDI benefits, you must report SSDI income on your tax return. You must report them in Box 5 of Form SSA-1099, Social Security Benefit Statement. The Social Security Administration (SSA) will mail you this form at the end of the tax year. Box 5 of Form SSA- 1099 shows the total Social Security benefits you receive.
You must report the amount shown in Box 5 on that form on Line 5a of your Form 1040 or Form 1040-SR, whichever one you file. Depending on your overall income, you should enter zero, 50%, or 85% of your Social Security disability benefits on Line 5b of either form.
State Taxes On Social Security Disability Insurance
In addition to federal income taxes, you may also pay state taxes on Social Security disability benefits. Although most states do not tax Social Security disability benefits, some states do so in certain circumstances. Currently, 13 states tax Social Security disability benefits, though they apply the tax differently.
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
Some states follow the same rules regarding disability benefits as federal taxes, while others have their own rules and formulas. Depending on your state, the rules governing what is considered exempt can differ, so it’s best to contact your accountant or tax advisor about your specific situation.
Conclusion
As you can see above, we’ve answered your question of “is SSDI taxable?” In most cases, the answer is no. However, if you have other sources of income in addition to your SSDI benefits, a portion of your benefits may be taxable.
The amount of taxes you’ll pay on your benefits also depends on what type of income you have in addition to your benefits and what tax bracket you fall into. If your benefits are taxable, you’ll get a notice in the mail from the Social Security Administration (SSA) telling you how much tax you owe.
You can also get this information by calling the SSA at 1-800-772-1213 (TTY 1-800-325-0778). If you have questions about your taxes or you’re unsure about whether your benefits will be taxable, you should speak with an accountant or tax advisor to get specific advice for your situation.