Arnett & Arnett, PC
Are Social Security Disability Benefits Taxed?
If you’re disabled under the definition used by the Social Security Administration (SSA), you may qualify for Social Security Disability Insurance (SSDI) to provide benefits while you are unable to work.
Qualifying isn’t always easy. Your disability must be such that you will be unable to work for at least 12 months or until death. Even then, the SSA may determine that you can work a different type of job than you are accustomed to and deny your claim.
Those with limited income and resources who are 65 or older, are blind, or are disabled can also apply for Supplemental Security Income (SSI) even if they have no work history. In addition, if you have enough work credits to qualify for SSDI (basically, you must have paid into the Social Security system for a minimum of 10 years through payroll or self-employment taxes), you can sometimes qualify for both programs.
The bottom line, for many SSDI and SSI recipients, is how these cash benefits will be treated when it comes time to pay federal income taxes. For SSI, the answer is simple – there is no tax. For SSDI, taxes due, if any, will be calculated based on your filing status and whether you had other income to report.
If you have questions about either of these programs, or you wish to file for benefits, or you have been initially denied in your claim, and you’re in the Chandler, Arizona area, contact our disability insurance claim attorneys at Arnett & Arnett, PC. With over 30 years of experience, we can help you seek the benefits you deserve through the initial claims process or on appeal.
We also proudly serve clients in Phoenix, Tucson, Flagstaff, and throughout Arizona.
Social Security Disability Insurance (SSDI) Benefits and Taxes
SSDI is a federal program. Arizona no longer offers a state supplement to the SSDI benefits you receive from the SSA. To qualify for the federal program, not only must you have a disability that will last for 12 months or longer, even for the rest of your life, but you must also have earned enough work credits. In 2022, you earn one work credit for every $1,510 in wages or self-employment income. You can earn up to four credits a year.
The number of work credits you need to get SSDI benefits depends on your age, but generally you need 40 credits, 20 of which were earned in the 10 years prior to your disability. In addition, as mentioned briefly above, the SSA may deny your benefits if your claimed disability will allow you to work in a different occupation.
Once you qualify and start receiving benefits, Uncle Sam may have his hands out when April 15 rolls around and taxes are due. It all depends on your tax filing status and the amount of income you receive from other sources, including your spouse. Here is the breakdown:
Filing as an Individual: If your “combined income” – from SSDI and other sources – is between $25,000 and $34,000, you will have to pay taxes on up to 50 percent of your income. If your combined income exceeds $34,000, the rate rises to 85 percent.
Filing Jointly with Your Spouse: If your combined income is between $32,000 and $44,000, the rate is 50 percent. Above $44,000, it rises to 85 percent. Remember, your spouse’s income counts.
Married but Filing Separately and You Lived Apart from Your Spouse: The same as filing as an individual.
Married but Filing Separately and You Lived with Your Spouse: The threshold is $0, so everything is generally taxable.
The above percentages refer only to the amount of your income that could be taxable, depending on deductions and other tax considerations. They do not equate to the percentage at which you will be taxed.
Remember also that Arizona does not tax Social Security benefits. The scale above is solely for federal taxes.
Supplemental Security Income Benefits and Taxes
As noted above, SSI is different from SSDI and does not require work credits, but it is limited to those with low income and low resources. Generally, a single claimant can have no more than $2,000 in resources, though exemptions are allowed for your home, car, and other essentials. A couple can have no more than $3,000 in combined resources.
When you qualify for SSI, you also usually qualify for Medicaid at the same time. If you are eligible for Medicaid, you may also qualify for Medicare, which will be paid for by the state.
SSI payments are not taxable.
How to Pay for Any Taxes Due
The Internal Revenue Service (IRS) expects you to make timely payments on any taxes due. If you wait till the filing date to pay your taxes for the entire year, you could be hit with a penalty.
You have two options for making timely payments. One is to make estimated payments quarterly using Form 1040-ES or paying online. The other route is to have the SSA withhold a portion of your monthly benefits for submission to the IRS.
Rely on Experienced Legal Guidance
Tax issues can get a bit complicated if you’re receiving SSDI and have other sources of income. Some sources of income are considered passive and don’t count toward the calculation of your combined income. It’s best to consult with experienced and knowledgeable disability insurance attorneys on all matters dealing with SSDI and other Social Security benefits.
If you’re in or around Chandler, Arizona, or anywhere in the state for that matter, contact us at Arnett & Arnett, PC with all your disability claim and benefits questions and concerns. We have more than 30 years’ experience in fighting for the rights of clients to the benefits they deserve. We can help you navigate the SSDI claim and appeals processes. Reach out today for a free consultation.