Social Security Disability, also known as Social Security Disability Insurance (SSDI), is a federal program that pays a monthly benefit payment if you become disabled before you're eligible to retire. To qualify for Social Security Disability, it's necessary to work long enough so that you have enough qualifying work credits. The Social Security Disability program is not a financial need-based program like Supplemental Security Income (SSA). You don't have to spend down your assets or have a household with no other forms of income to qualify.
If you're trying to qualify for Social Security Disability or have received notice that you've been awarded benefits, you may wonder if the benefits are taxable. Keep reading to learn important information about taxes and your Social Security Disability benefits.
Taxation of Your Social Security Disability Depends on Your Household Income
Whether your Social Security Disability payments are taxable depends on your current filing status and your total household income. To find your total household income, add together your household's adjusted gross income, any sources of unearned income (like interest earnings), and half of your Social Security Benefits. If you file as single or head-of-household and your total income exceeds $25,000, you'll likely have to pay taxes on half of your benefits. Should your total income exceed $34,000, expect to pay taxes on up to 85% of your benefits.
When filing as married, you'll have to pay taxes on 50% of your benefits if your total income exceeds $32,000. If your total income is over $44,000, the amount of your taxable benefits rises to 85%. There is no income threshold for married-filing-separately taxpayers. Expect for some of your benefits to be taxed.
Your Back Pay May Be Taxed at a Higher Rate
Many individuals aren't approved for Social Security Disability the first time they apply. It's common to have to appeal the initial decision before you're awarded benefits. You may have to wait months or years from the onset of your disability for your payments to begin. However, once you're approved for benefits, you'll receive any back pay that you're entitled to. The back pay will start at the onset of your disability, minus the waiting period for Social Security Disability. If your back pay is a significant amount, this may increase your income for the year, causing some of your benefits to be taxable.
Fortunately, there's a way around this situation. Should your back pay include payments from previous years, it's possible to apply the income to an earlier tax year, decreasing your income for the current year. If you find yourself in this situation, consult with a Social Security representative to determine the correct way to reassign your income.Share