How Social Security Disability Benefits Are Taxed

Social Security Disability Insurance (SSDI) benefits are taxable under certain circumstances. The IRS taxes SSDI benefits based on your combined income, which includes your SSDI payments and any other income you may receive, such as wages, investments, or retirement benefits. The amount of your SSDI benefits that is taxable will depend on how much additional income you have.

What is Combined Income?

The IRS calculates your combined income by adding the following:

• Adjusted Gross Income (AGI): This includes income from wages, investments, and other sources.
• Non-taxable Interest: This refers to interest income that is not taxable.
• Half of Your SSDI Benefits: The SSA includes half of your SSDI benefit amount in the combined income calculation.

Taxability Based on Combined Income

The IRS has income thresholds that determine whether your SSDI benefits will be taxed. Here’s a breakdown:

For Individuals (Single Filers)

• If your combined income is below $25,000: Your SSDI benefits are not taxable.
• If your combined income is between $25,000 and $34,000: Up to 50% of your SSDI benefits may be taxable.
• If your combined income is above $34,000: Up to 85% of your SSDI benefits may be taxable.

For Married Couples (Joint Filers)

• If your combined income is below $32,000: Your SSDI benefits are not taxable.
• If your combined income is between $32,000 and $44,000: Up to 50% of your SSDI benefits may be taxable.
• If your combined income is above $44,000: Up to 85% of your SSDI benefits may be taxable.

For Married Individuals Filing Separately

• If you are married and file separately, you will likely pay taxes on your SSDI benefits, regardless of your combined income. In this case, 85% of your SSDI benefits may be subject to taxation.

How Are Social Security Disability Benefits Taxed?

If your SSDI benefits are taxable, the amount that is taxable is added to your other income and taxed based on your marginal tax rate. The exact rate depends on your total income and filing status. The IRS uses the standard tax brackets to determine your rate, which can range from 10% to 37% depending on how much income you have.

For example, if you’re an individual with a combined income of $30,000, you may be taxed on up to 50% of your SSDI benefits. If half of your SSDI benefit is $12,000, this amount would be added to your other income and taxed according to your total income tax bracket.

How to Avoid Surprises at Tax Time

To avoid a surprise when you file your taxes, here are a few steps you can take:

• Calculate Your Combined Income: Use the IRS guidelines for combined income to determine if your SSDI benefits will be taxed.
• Estimate the Taxable Amount: If your income exceeds the threshold, calculate the percentage of your SSDI benefits that may be taxable (50% or 85%).
• Set Aside Funds: If your SSDI benefits are taxable, set aside funds throughout the year to cover your tax liability.
• Check Your Tax Withholding: Consider having taxes withheld from your SSDI benefits if you expect to owe taxes. You can request this by filling out Form W-4V (Voluntary Withholding Request) with the Social Security Administration.