Do You Have to Pay Taxes on Social Security Disability?
“Do you have to pay taxes on Social Security Disability?” is one of the most frequently asked questions when people apply for benefits.
The answer to that question is not straightforward. For most people on Social Security Disability, their benefits are not taxed. Even people who have alternate sources of income may not be taxed.
As a general rule, it is quite probable that your Social Security Disability benefits will be taxed if you or your spouse have a substantial alternate source of income.
Tax Brackets for Social Security Disability
Here is the break-up of when and how much you would have to pay taxes on your Social Security Disability:
- If you are single and your income is greater than $25,000 but less than $34,000, then you would be paying taxes on 50% of your SSD benefits.
- If you and your spouse jointly file for taxes, and your annual income is up to $32,000, then you will have to pay taxes on 50% of your SSD benefits.
- If you are single and you earn more than $34,000, up to 85% of your SSD benefits could be taxed.
- If you and your spouse jointly file for taxes, and your annual income is more than $44,000, then up to 85% of your SSD benefits could be taxed.
Tax rates for those who do have to pay taxes on Social Security Disability
The good news is that even if you fall within these tax brackets, your Social Security Disability benefits would be taxed only at marginal rates. This means that you would pay 10% to 15% of the 50% or 85% of your Social Security Disability benefits that are taxable. However, if you fall in the higher income bracket, then you will probably pay 33% to 35% on 85% of your Social Security Disability benefit amount.
State Taxes vs. Federal Taxes
At the state level, most states in the US do not levy any taxes on your Social Security Disability income. There are exceptions to the rule, though. Some states tax you the same way that the Federal government does as discussed earlier. Other states have their own way of levying taxes on your Social Security Disability benefits.
For further details about how your state deals with Social Security Disability income taxes, see this link: State tax structures on Social Security Disability benefits.
Retroactive Benefits and/or Back Payments
If you receive your retroactive benefits or back pay, then you could actually end up paying taxes on this lump sum amount all together in one year. And since you’d be getting a lump sum, you would have to pay a higher tax rate. If, your back pay was for months from a previous year, then you may be able to move the income to that year.
The best thing you could do with regard to figuring out your income tax for retroactive benefits or back payments is to get in touch with a CPA or an attorney who knows tax laws and how they apply to Social Security Disability
A tip from the Social Security Administration, every year in January, you will receive your Social Security Disability benefits Statement (this is the Form SSA-1099), which shows how much you received for the previous year. This is the form you can use when you file your Federal income tax returns to see if you will have to pay taxes on your SSD benefits.