What are the Taxes on Social Security Disability Benefits?

Some Social Security disability beneficiaries may have to pay federal income taxes, while some do not. Here are ways to determine whether or not you have to pay taxes on social security disability benefits.

Taxes on Social Security Disability Insurance

The Social Security Disability Insurance (SSDI) benefits may be taxable. To determine whether your SSDI benefits are subject to federal income taxes, you have to take into consideration the payments you receive under the program and your other sources of income.

If you are single and you are earning more than $25,000 per year including SSDI benefits, a portion of your benefits will be taxable. If you are married and you and your spouse filed jointly, SSA will take into account your combined income. If you and your spouse are making more than $32,000 in income per year, including SSDI benefits, a portion of your benefits will also be taxed.

The charts below show you annual income amounts and the corresponding portions of SSDI benefits that are subject to tax.

For individuals 

For married beneficiaries 

If your benefits are subject to tax because your income is beyond the limit, disability benefits will be taxed at the marginal tax rate. Meaning, you may not be paying taxes of 50% or 85% of your disability benefits but pay about 10% to 15% on 50% to 80% of your benefits. If your income is higher, in which case 85% of your disability benefits will be taxed, you may have to pay 35% tax on your benefits.

There are also state taxes to consider. Most states don’t tax disability benefits, but there are still some that impose taxes using the federal government income brackets as listed above. These states are:

• Connecticut
• Colorado
• Iowa
• Kansas
• Montana
• Minnesota
• Nebraska
• North Dakota
• Rhode Island
• Utah
• Vermont
• West Virginia

Taxes on Social Security Disability Backpay

Lump-sum back payments, which are benefit payments for the months you are disabled but have not yet been approved for benefits, may add up to your income for the year you received them and cause you to pay a bigger portion of your benefit in taxes.

You can avoid losing a large portion of your backpay by applying the past-due benefits to be allocated to the previous years you should have been paid, and so you wouldn’t have to file amended tax returns for these years. Social Security will send you the SSA-1099 form, and the Box 3 of the form states the exact lump sum amount accrued during the previous years. It is advisable to seek the assistance of a CPA or a lawyer for this matter.

Withholding Taxes on Social Security Disability Benefits

 You are not required to whithhold federal taxes from your SSDI benefits. But you may do so if you want to avoid owing large taxes for the year. You may fill out the Voluntary Withholding Request form or the IRS W-4V form. As soon as you complete this form, you should submit it to the nearest Social Security office. It is advisable, however, to consult a tax professional regarding this matter as setting up a tax withholding arrangement may not be necessary in your case.