Do I Have to File Taxes While Receiving Disability Benefits?

Published on: November 13, 2018

Disability Benefits Taxes

Since 1955, Tax Day has rolled around once a year, typically on April 15th for those living in the United States, and June 15th for US citizens living abroad or in a US territory (due to a two-month automatic extension granted by the IRS). For individuals working for an employer, tax season is pretty straightforward; your employer deducts taxes from your paycheck, and at the end of the year you receive a W-2 form telling you how much you owe the government—or how much the government owes you. For Social Security Disability (SSDI) beneficiaries, it’s not quite as cut and dry. Let’s take a closer look.

Social Security Disability Benefits and Taxes

Social Security Disability payments aren’t always taxable; in fact, according to the Social Security Administration (SSA), approximately one-third of recipients do not pay taxes on their benefits. Income, in conjunction with marital status, is a main determinant of whether you will have to pay taxes on your benefits. The SSA states that benefits are taxable “only if you have substantial income in addition to your Social Security benefits.” Let’s take a closer look.

Taxable Amounts on Social Security Benefits

First, let’s be clear that we are only discussing SSDI benefits. Supplemental Security Income (SSI) is for individuals who have an income-based need, and thus do not earn enough money for it to be considered a “substantial amount” for tax deduction. SSI benefits are never taxable.

Circumstances in Which Social Security Disability Benefits Are Not Taxable:

  • You file taxes as an individual and make less than $25,000 annually.

  • You file taxes jointly with a spouse and combined you make less than $32,000 annually.

 It’s important to note that if your income exceeds these amounts in either scenario, you’ll never have to pay tax on all of your disability benefits (the maximum you can be taxed on benefits is 85%).

Taxable Percentages on Social Security Disability Benefits

  • 50% of your benefits are taxable if you file taxes as an individual or jointly with a spouse and make less than $44,000.

  • 85% of your benefits are taxable if you file taxes as an individual or jointly with a spouse and make more than $44,000.

It should be noted that the above earning amounts do not include Social Security Disability benefits; the income figure arrived at in this computation is referred to as "Modified Adjusted Gross Income."

Taxable Amounts on Back Payments

Recent Social Security Disability recipients often receive a back payment from the SSA, which is paid in a lump sum amount. But be careful about claiming that entire amount on your tax return within a single year; this may bump you into a higher tax bracket, and you could wind up paying more taxes than you actually owe. If you’ve received a lump sum payment from the SSA, it’s probably in your best interest to file amended returns for the previous years that the back payment covered and only claim this year’s payment on your current return. Granted, this can get a bit complicated (and may not even be necessary depending on the amount of the lump sum), so unless you’re a tax pro we recommend seeking the advice of a CPA.

State Taxes and Social Security Disability Benefits

If you’re living in Florida, you know that the Sunshine State doesn’t have an income tax, which means SSDI and SSI aren’t taxed either. However, this could change if you relocate or move out of the state even for a brief period of time. In the event of these exceptions, it’s wise to reach out to a trained disability expert who can evaluate the status of your benefits and elicit counsel for you or a loved one before tax season hits.

Withholding Taxes on Social Security Disability Benefits

If you know, based on your income, that you’re going to wind up having to pay taxes on your SSDI, you can request that the SSA withhold taxes from your payments so that you don’t owe (or at least, owe less) come tax time. The SSA doesn’t withhold automatically, so you’ll need to contact them directly to make arrangements.

Questions About Social Security Disability Benefits?

There are many factors that can change or reduce your Social Security Disability benefits—this includes pensions, military pay, a marriage or divorce, if you care for a child that also receives benefits, and more. To keep your nose clean, it’s always good practice to notify the SSA of any substantial income changes. Have other questions about Social Security Disability benefits or need to file a claim regarding your Social Security Disability and Supplemental Security Income (SSI)? Give Disability Experts of Florida a call at 855-777-0455. We are here for you.


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