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Are Social Security Disability Benefits Federally Taxable?

Are Social Security Disability Benefits Federally Taxable?

Although disability benefits through Social Security Administration (SSA) are subject to federal taxation, most recipients do not pay taxes on them. The beneficiaries who do pay taxes likely do so because they have other substantial income in addition to their SSDI benefits, such as dividends and interest.

Taxation depends on which kind of disability benefit you receive. If you receive Supplemental Security Income (SSI) benefits, those benefits are not taxed. If you receive Social Security Disability Insurance (SSDI) benefits, the amount that you are taxed depends on your income threshold.

If you are single and bring in more than $25,000 in income per year, including half of your SSDI benefits, a portion of your SSDI benefits may be subject to tax. If your income is between $0 and $2,083 per month, 0% of your SSDI benefits will be taxed. If your income is between $2,084 and $2,833 per month, up to 50% of your SSDI benefits could be taxed. If your income is $2,834 or higher per month, up to 85% of your SSDI benefits could be taxed.

If you are married and filing jointly, and you and your spouse bring in more than $32,000 in income per year, including half of your SSDI benefits, a portion of your SSDI benefits may be subject to tax. If your income is between $0 and $2,666 per month, 0% of your SSDI benefits will be taxed. If your income is between $2,667 and $3,666 per month, up to 50% of your SSDI benefits could be taxed. If your income is $3,667 or higher per month, up to 85% of your SSDI benefits could be taxed.

Another scenario that may require to you pay federal taxes occurs if you receive a large lump-sum payment of back benefits. This sum of money may bump up your income the year that you receive it, but the back pay covers a longer period of time than just the year in which you receive the lump-sum payment.

To avoid paying more taxes on a lump-sum back benefits payment than is necessary, you can apply the benefits you would have received to the prior years in which you would have received them, which will lower the amount of income you have to claim in the year you receive the lump sum.

You can also ask SSA to withhold a percentage of your monthly benefits for federal taxes at the time you apply for benefits. Note, however, that SSA only allows you to request specific percentages withheld, not specific monetary amounts.