When Is SSDI Taxable?

Is SSDI taxable? While some people who receive Social Security Disability Insurance benefits may need to pay income taxes on their payments, SSDI is not taxable in most situations. If the household has additional income from a spouse or another source, however, SSDI benefits may be subject to income taxes. The uncertainty and difficulty of filing taxes may leave a person wondering, “when is SSDI taxable?” and “can the state tax SSDI?” A tax professional may be able to answer these questions and more.

What Is Social Security Disability Insurance?

The Social Security Disability Insurance (SSDI) program provides benefits to people who have disabilities. To qualify for disability benefits through the SSA, recipients must have earned enough work credits. Claimants must have worked long enough and recently enough, and they must have paid into Social Security.

Additionally, claimants must have a qualifying disabling condition that keeps them from working to earn a substantial income. Qualifying workers are no longer able to perform the job duties they performed prior to their disability, and are unable to complete other types of work because of the disabling condition. 

Finally, the person must have the disability for at least 12 months, expect the disability to last one year, or have a disabling condition that is terminal.

How Is SSDI Different from SSI and Social Security Retirement Benefits? 

SSDI benefits differ from Social Security retirement and Supplemental Security Income (SSI) benefits. 

  • SSDI benefits are intended to provide people who have a disabling condition with income and medical care coverage. Your income level and filing status determine whether you will need to pay taxes on your SSDI benefits.
  • Social Security retirement benefits pay retired workers based on their past earnings. Retirement benefits are independent of disability. Some people have to pay federal income taxes on up to 85% of their retirement benefits. 
  • SSI benefits are designed for people with limited to no income who are disabled, blind, or aged. Generally, SSI benefits aren’t taxable because the recipients don’t make enough income to require tax reporting.

How Social Security Disability Benefits Affect Your Tax Liability

Oftentimes, SSDI benefits recipients don’t need to pay taxes because they tend to have minimal income from other sources. However, individuals may need to pay taxes on these benefits under certain circumstances. If a recipient has other sources of income, reporting SSDI income on tax returns may be necessary.

Generally, if you are a single filer, and your income falls between $25,000 and $34,000, you will need to report up to 50% of your SSDI benefits when you report your taxable income. If your annual income exceeds $34.000, up to 85% of your SSDI benefits may be taxable.  

If you are married and file jointly with your spouse, up to 50% of your SSDI may be taxable if your combined income is between $32,000 and $44,000. If your combined income is over $44,000, you may need to pay federal income taxes on up to 85% of your SSDI benefits. 

When Is SSDI Taxable?

You may be wondering, when is SSDI taxable? The Internal Revenue Service (IRS) states that SSDI is taxable if one-half of the recipient’s benefits and the rest of their other income exceeds a specific amount based on the recipient’s tax filing status.

Even if the individual isn’t working, other income may be considered when determining whether SSDI is taxable. The person would need to report tax-exempt dividends, interest, and other unearned income.

If the individual is married and needs to file a joint tax return, he or she will also need to report the spouse’s income to find out whether SSDI benefits are taxable. Even if the spouse isn’t receiving Social Security disability benefits, this rule still applies.

How much tax you pay depends on your income level. If the disability recipient and his or her spouse make more than $32,000 per year, which includes half of the SSDI benefits, a portion of the benefits will qualify for taxation. If the recipient is single and makes more than $25,000 per year, including half of SSDI benefits, he or she will need to pay taxes on a portion of his or her benefits.

Is SSDI Taxable at the State Level?

Can the state tax SSDI? Depending on where you live, you may need to pay state taxes on your SSDI benefits. Today, only 12 states charge state income tax on SSDI benefits. SSDI is not taxable when filing a state income tax return in Illinois. 

If you file income taxes in multiple states, or some place besides Illinois, your accountant can help you determine whether your SSDI is taxable. 

Is SSDI Back Pay Taxable?

Back pay refers to SSDI benefits for the months when the individual was disabled and waiting for approval. SSDI back pay, including lump-sum payments, could increase SSDI recipients’ income for the year in which the individual receives them. This could lead to increased tax liability for individuals. 

If SSDI recipients don’t want to lose a portion of their back pay through taxation, they can apply their benefits owed from the year before to previous tax returns. Doing so would reduce their taxable income for the year when they receive their back pay. 

How to Report SSDI Benefits on Your Tax Return

Understanding how SSDI is reported on a federal tax return can ensure you properly complete your payment. When filing tax returns, SSDI recipients will need to report disability benefits in Box 5 of Form SSA-1099, Social Security Benefit Statement. The Social Security Administration mails this form out to recipients every year to help ensure they pay the necessary tax on SSDI income.

Individuals then report the total that appears in Box 5 of Form SSA-1099 on Form 1040 or Form 1040-SR on line 5a. The individual reports the taxable portion of the SSDI benefits on line 5b on either form.

Additional Tips for Filing Taxes When You Have SSDI Income

Various resources are available for people who have SSDI income and need to file taxes. 

Social Security Disability Attorney Howard Ankin

One way to get the most from your SSDI benefits and avoid overpaying taxes is to work with a financial advisor. In some cases, financial advisors can help people invest their money to reduce tax liability.

A tax professional can also provide guidance regarding SSDI taxability. He or she may be able to help you find tax credits and other solutions to decrease the amount of your taxable income.

Chicago personal injury and workers’ compensation attorney Howard Ankin has a passion for justice and a relentless commitment to defending injured victims throughout the Chicagoland area. With decades of experience achieving justice on behalf of the people of Chicago, Howard has earned a reputation as a proven leader in and out of the courtroom. Respected by peers and clients alike, Howard’s multifaceted approach to the law and empathetic nature have secured him a spot as an influential figure in the Illinois legal system.

Years of Experience: More than 30 years
Illinois Registration Status: Active
Bar & Court Admissions: Illinois State Bar Association, U.S. District Court, Northern District of Illinois, U.S. District Court, Central District of Illinois
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