August 30, 2014

Paying taxes on Social Security Disability benefits

With only one month to go until April 15th, our focus has quickly shifted to this year’s tax preparations. From W-2s to 1099s, to 1040 mailings to tax preparer solicitations, we are bombarded with reminders of our obligations to both the federal and state governments – whether we like it or not!

While some individuals who receive Social Security Disability pay taxes on their benefits, some do not. Individuals excluded from this rule are those persons receiving SSI. SSI benefits are non-taxable, thus depleting the need to report them on any tax return. However, if a SSI recipient earned additional monies other than SSI benefits, he or she is required to report those monies earned on the appropriate tax form.

Approximately one-third of all beneficiaries receiving benefits are required to pay taxes on money received. Two factors determine whether an individual will be required to pay taxes on any benefits received. The total amount of money earned (SSDI + additional income) and an individual’s filing status (single, married filing jointly, married filing separately) are those things considered. To determine whether your benefits are taxable, compare the base amount representing with filing status with one-half of your benefits plus any additional income, including tax-exempt interest.

Single $25,000.00 (base amount)
Married filing separately $0.00 (base amount)
Married filing jointly $32,000.00 (base amount)

Hypothetical cases incorporating these guidelines are below:

Hypothetical situation # 1

Anne is single and receives SSDI, and over the course of 2009 received $18,000.00 in disability benefits. She received $2,000.00 as additional income in the form of commission from a business that she has. Her combined total income for 2009 is therefore $20,000.00. Since the total amount earned is below the $25,000.00 required for a person-filing single, Anne is not taxed on her disability benefits. *Note: Because Anne’s salary combined was below the set income of $25,000, there was no need to consider one-half of her benefits. The results either way would have been the same.

Hypothetical situation # 2

Daniel, a single 43-year-old male, received $18,000 in disability benefits during the year of 2009. In addition, he earned $18,000.00 as a commercial construction consultant. In this case, to determine whether Daniel would have to pay taxes on his disability benefits, we would need to take one-half of Daniel’s disability benefits (1/2 of $18,000 = $9,000.00) and add those monies to any other income that Daniel received in 2009. In this case, he earned an additional $18,000.00. These two totals combined equal $27,000.00, which is $2,000.00 over the $25,000.00 maximum for individuals whom file single. In this case, Daniel’s benefits would be taxed as well as any other income he earned during 2009.

A rule of thumb, if you are in doubt whether you are required to pay taxes on your benefits, consult with a professional tax preparer. Ignorance is not a defense in law.

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Jonathan Ginsberg represents Social Security disability claimants in Georgia. In practice for over 23 years, Jonathan publishes a widely known disability blog, a podcast and several disability web sites. In 2004, Jonathan published a "how to" book about Social Security disability called the Disability Answer Guide. Jonathan lives with his wife and 2 children in Atlanta.

Comments

  1. Daisy Reeves says:

    Dear Mr. Ginsberg,

    Due to myself and owner of the company realizing I could no longer work, I was offered a separation agreement. In that agreement, I was to have health insurance for 2 years and be paid about half my former salary. Therefore I was left on the payroll until Dec. 2008.

    I never worked past Oct. 25, 2006. I had worked there for 25 years. I applied for SSDI and won my case in Jan. 2009. The ALJ perceived the money to be sick pay, when I told him as I stated to you above.

    Now I have received a Work Activity Report from SSA and am unsure how to answer. What can you advise?

  2. Maria T Fernandez says:

    This year and due to the death of my ex-husband I am receiving $18,000 yearly. Do I have to file for IRS?

  3. I received $16,776.00 this yr. Do I have to file? There’s no more income other then that.

  4. Scott, you will need to talk to a CPA or a tax preparer for tax filing advice specific to your situation.

  5. In your two example of determining whether or not disability payments are taxed, you do not say if the additional income amount is gross or net (after taxes). Could you clarify.

  6. @Kat, generally taxes are calculated on gross income. However if you have specific questions about your tax obligations, you should speak to a CPA or a tax preparer. Do not rely on this or any web site/blog for tax advice.

  7. Jonathon, I need to know. Does peoples on disability SSI, can they apply for tax, because it have going around right now, that people on SSI can apply for taxs return for something call blanket? I’m confuse.

  8. IF I EARN 24,000 IN SSD AND 17,000 ON A PENSION IT IS ABOUT 8,000 OVER THE LIMIT. AM I ONLY TAXED ON THE 8,000?

  9. janet kubick says:

    Hi, My Husband recieves $27,588 yearly in SSI, I do not work. My 12 year old daughter is eligble and she gets $13,788 yearly. Would we have to file for tax return this year? Thank you

  10. Jean Taylor says:

    In 2012 I will have reached $25044 in SSDI benefits. I have passive rent income of $7200. I’m taking care of my partner’s Mother with low rent. Is rent stil considered non income at this time? Or do I need to other arrangements for her? Thank you.

  11. Jean, to my knowledge rental income is still considered passive for SSDI purposes.

  12. If I haven’t worked all year and my son receives SSI do I have to file taxes an claim him or can someone else claim him even though I am the rep payee?

  13. Amp, you need to speak to a tax adviser about this issue.

  14. Angela Booth says:

    Jonathan, hi my husband and I are both on disability. We have been told we do not need to file however we are paying interest on our house and an equity loan. I have tried to figure out the worksheet but can’t make any sense of it. Are the benefits we receive considered income and if so can we file to get credit for the interest and EITC? Thanks!

  15. Rinah Yamamoto says:

    I am the payee for a young man receiving disability (SDI). Over the last year he received some SSI, welfare, and mostly SDI. He also received a lump SDI payment for four years of arrears due; close to 40,000. Obviously, this is a rather complicated situation. The arrears was deposited in an interest bearing account and a portion of it used to pay off past debts. A substantial amount remains in the savings account (as a safety net in case of medical expenses etc.).
    This is my first experience as a payee. And, now that it is tax season I need to know if I report this on my own personal taxes. And, since I will likely be filing his taxes, how will this all play out on his taxes. Is it best to use some of his SDI to pay a tax adviser? Unfortunately, I cannot afford one for myself.

  16. I rec’d a catch up check in 2011 for 2010 SSDI. Once I was approved on SSDI they gave me the retro money. Total is $56,000 for 2011. What do I have to pay on? Is it 1/2 of $56 which is $28k and I only have to pay on the $3k that is above the set income of $25k or do I have to pay on the $28k. If so what is the tax rate or how much money does that end up being?
    Thank you

  17. hi i get disability 762.00 a month and my wife sells avon , so she has to file self employed. she makes sometimes 900.00 a month. we dont hardly make it after she spends so much on gas carrying the oders to people, do i file taxes ? seems like we should get money back. house payment of 605.00 a month, someone please help me

  18. Hi, I received 12,410 in SSD benefits and no other income.I am single with no children.my niece told me o can claim head of household and get a refund? I don’t believe her.I know i’m eligible for a homestead refund for rent. Thanks, Kim

  19. I’ve just received my payout from ssdi of $10,930 and a monthly amount of $1,660 per month. For the last year I have been receiving workers comp which is non taxable and continue that compensation. Do I have to pay taxes with the ssdi I have received?
    Thank you!

  20. You need to talk to a CPA or tax adviser for tax advice specific to your situation.

  21. Marcia O'York says:

    I am married filing jointly. I received 15,000 SSD.My additional income was 9,540 from work. My husband’s income was 21,000. Do I have to pay taxes on my SSD.When I was single I did not but I was not working at that time either. Thank you Marcia O’York

  22. Marcia, there is no generic answer to this question – you need to speak to your tax adviser.

  23. Kimberly, that is a tax question that you will need to discuss with a CPA or tax preparer.

  24. Bob, this is a question for a CPA or tax preparer.

  25. I was declared permanently and totally disabled in Oct. of 2011. I currently receive 15,500.00 in SSD benefits and 18,500.00 in disability retirement from the state of florida. I am married. My question is what percentage of tax will I pay on my SSD that I receive?

  26. Tim, you’ll need to talk to a CPA or tax preparer – your tax liability will be specific to your individual situation.

  27. If I received buyout money from a landlord totaling 37,000,000 of which went into a special needs trust account do I need to pay taxes on that money?

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