Are Social Security Disability Benefits Taxable?

Are Social Security Disability payments Taxable?

If you’re receiving or expecting to receive Social Security Disability Insurance (SSDI) benefits, you may be wondering: will I owe taxes on my disability benefits? The answer depends on your income level, your filing status, and whether you’re also receiving other income.

The Basics: SSDI vs. SSI

• SSDI (Social Security Disability Insurance): Funded through payroll taxes (FICA). Benefits may be taxable if your overall income is above certain limits.
• SSI (Supplemental Security Income): Based on financial need. SSI benefits are never taxable.

When SSDI Benefits Are Taxable

The IRS looks at your “combined income” to determine if you’ll owe taxes on SSDI. Combined income =
Adjusted Gross Income (AGI) + Nontaxable Interest + Half of SSDI Benefits.

• Single Filers:
• If combined income is below $25,000, SSDI is not taxable.
• If income is between $25,000 and $34,000, up to 50% of SSDI may be taxable.
• If above $34,000, up to 85% of SSDI may be taxable.
• Married Filing Jointly:
• If combined income is below $32,000, SSDI is not taxable.
• If income is between $32,000 and $44,000, up to 50% may be taxable.
• If above $44,000, up to 85% may be taxable.

Examples

• Example 1 (Not Taxable):
  Sarah receives $15,000/year in SSDI. She has no other income. Half of her benefits ($7,500) + $0 other income = $7,500 total combined income → below $25,000. No taxes owed.
• Example 2 (Partially Taxable):
  John and Mary file jointly. They receive $20,000 in SSDI and $25,000 in other income. Combined income = $25,000 + $10,000 (half of SSDI) = $35,000. This puts them in the 50% taxable range.

Backpay and Lump Sum Payments

If you win your disability case and receive backpay, the IRS may let you spread the income across the years it was owed rather than taxing it all in one year. This often reduces the tax burden, but you should work with a tax professional to file correctly.

Key Takeaways

• SSI benefits are never taxable.
• SSDI benefits may be taxable if your combined income exceeds IRS thresholds.
• At most, 85% of your SSDI benefits can be taxed, never 100%.
• If you receive backpay, special IRS rules may reduce taxes owed.

👉Click here to find out how much money you may be entitled to each month.

👉Click here to find out how much back pay you could be entitled to.