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Are my disability benefits taxable?

Are my disability benefits taxable? 4

Are my disability benefits taxable? 5

If you have been injured and are receiving Social Security Disability Insurance, you may have several concerns about how far your money will stretch. Paying a substantial part of what may be a quite modest amount of SSDI is not something that is regarded with particular satisfaction by the recipients. For the most part, Social Security Disability Insurance is not taxed at the federal level.

The Social Security and Supplemental Security Income disability programs are major Federal programs to provide assistance to those with disabilities, which are administered by the Social Security Administration.

Social Security Disability Insurance pays benefits to the beneficiary and certain members of the beneficiary’s family and any supplemental Security Income also pays benefits based on the financial needs of the beneficiary.

There are, however, certain circumstances in which your income can be taxed.

In this article, we will explore those situations. 

Requirements for Collecting SSDI

The estimated average Social Security disability benefit amount for a disabled worker receiving SSDI is $1,258 per month as of December 31, 2019. These benefits are based on average lifetime earnings, not on household income or how severe the individual’s disability is.

In order to qualify for Social Security disability benefits, you must meet the following criteria:

  • SSDI only covers total disability. If you are partially disabled, you will not qualify. That means that you are unable to do the work that you did before, that your disability is expected to last a year or more, and you cannot transition to other work. 
  • If you are working and earning more than $1260 per month, you will not qualify for SSDI.
  • You have to have been working a job that pays into the Social Security Insurance for a period of time. In 2020, the SS formula requires you to get a certain amount of credits to qualify. You are scored one credit for $1410 in wages earned. You need 40 credits ($56,400) with 20 being earned over the past ten years to qualify. 


It is clear therefore that the income ceiling for SSDI is fairly low, which is one of the reasons why most people with SSDI benefits aren’t taxed. 

Circumstances Where Social Security Disability Benefits Could be Taxable

Most people don’t earn enough to have to pay taxes on SSDI. SSDI benefits range from $800 to $800 per month or $9,600 to $21,600 per year. If you’re filing as an individual and your income is $25,000 to $34,000, about half of your benefits are taxable.

In order to qualify for Social Security disability benefits, you must have worked for a certain period in a job that is covered by Social Security. Generally, you will need 40 credits, 20 of which were earned in the last 10 years, ending with the year in which you became disabled. You must also have a medical condition that meets Social Security’s definition of what amounts to disability.

That’s not to say that you have to give up half of your benefits to taxes. You will be taxed at a very low rate on about 50 percent of what you’re receiving. If you make more than $34,000 as a single person, a larger portion of your benefits can be taxed. 

So far as insurances are concerned, Social Security Disability Insurance should not be confused with Supplemental Security Income (SSI), which pays benefits to those who have financial needs regardless of their work history. These two names sound similar, but the qualifications to get the payments and what you might receive are very different.7

What about state income taxes? 

There are very few states that tax Social Security benefits.

The Social Security Administration will send you a Form SSA-1099 each year, which includes the total amount of Social Security benefits you received for the year. That number will have to be reported as part of your taxable income, however only a portion of the Social Security benefits is taxable.

If you are a resident of California, where Pisegna & Zimmerman is located for instance, you do not have to pay state income taxes on Social Security disability benefits. Montana, Utah, and Mexico tax some or all SSDI benefits and you need to check the tax status of your SSDI benefit depending upon your jurisidiction.

Other Situations Where Your SSDI Could be Taxed

As was previously mentioned, if you make too much money, you will probably not qualify for SSDI, so if you have things like rental income, investment income, or a pension, you probably make too much money to qualify for SSDI. If you make less than $1710 per month, you may still qualify for SSDI. If you have other income, still qualify for SSDI, and have a combined income that puts you above the $25,000 threshold, your SSDI may be taxed. 

If you have more questions about SSDI and taxation, check out the Social Security Disability Insurance website

Authors:

Source: Pisegna & Zimmerman are based in Sherman Oaks, California and handle social security disability insurance issues as well as personal injury and bankruptcy legal work.

  1. That’s good to know there are a lot of specific rules for social security disability. My friend was recently pretty injured, so that’s good to know. I’ll have to recommend that he looks into getting a lawyer to help him know if he qualifies or not so he could get the benefits he needs.

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