social security disability benefits

Are Social Security Disability Benefits Taxable?

Navigating the Social Security disability benefits application process is no easy feat. The requirements are specific and detailed. Many, if not most, applicants get initially denied and thus have to go on to maneuver the appeals process. Once you have been granted disability benefits, you will likely feel much-needed relief. While Social Security disability benefits can provide critical financial support to those in need, there are other consequences, such as tax consequences, that benefits recipients should be aware of. We will discuss more on that here.

Are Social Security Disability Benefits Taxable?

In some cases, Social Security disability benefits are taxable. This depends, however, on the type of disability benefits you receive. It also depends on your overall level of income. You see, there are two benefit programs that the Social Security Administration runs for individuals with disabilities. The two programs are Social Security Disability Insurance (SSDI) and Supplemental Security Income).

SSI is financial assistance for disabled and other qualifying individuals who have low incomes and limited financial resources. The money comes from the U.S. Treasury as opposed to Social Security taxes, even though the Social Security Administration runs the program. SSI benefits are not subject to income tax.

On the other hand, however, you have SSDI. SSDI is taxable under certain circumstances. This hinges almost exclusively on your level of income. Whether or not you will pay tax on SSDI benefits is based on, as the Internal Revenue Service refers to it, your “provisional income.” Your provisional income is calculated using the sum of your adjusted gross income, your tax-exempt interest income, and half of the amount you get in Social Security benefits for a particular year. If these numbers add up to less than $25,000 per individual taxpayer or less than $32,000 for a married couple filing jointly, there will be no tax consequences for receiving SSDI benefits that year. 

For those individuals with provisional incomes at $25,000 or more or for married couples filing jointly with provisional incomes at $32,000 or more, there will be tax liability for SSDI benefits and the amount will range on a sliding scale based on your provision income. For individuals with provisional incomes ranging from $25,000 to $34,000 and couples with provisional incomes of $32,000 to $44,000, up to 50% of your SSDI benefits will be subject to taxation. Alternatively, for those individuals with provisional incomes at over $34,000, 50% to 85% of your SSDI benefits will be subject to taxation.

In reality, the majority of SSDI benefit recipients do not face tax consequences for receiving these benefits. This is due to the fact that most benefit recipients are out of work due to their disabling condition. In fact, the Social Security Administration reports that only approximately one-third of disability benefit recipients end up paying taxes on those benefits, usually due to the income generated by a household member such as a spouse. 

Disability Attorney

Do you have disability benefits questions? Roeschke Law has the answers you are looking for. Contact us today.