A frequent question that arises when a client is approved for either Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits is whether the client has to pay taxes on Social Security disability payments.
As is the case with many rules that impact Social Security disability claims the answer is: It depends.
The general rule is that if your total income, including Social Security disability benefits, exceeds $25,000 a year for an individual or $32,000 a year for a married couple, you have to pay federal taxes on that income.
If your only source of income is SSDI benefits, the risk of earning more than $25,000 per year is slim considering the average monthly SSDI benefit amount is $1,111. The risk of earning over $25,000 if you only receive SSI benefits is non-existent considering the maximum SSI benefit amount in 2012 was $698 per month.
The federal tax implications will impact those who are receiving SSDI benefits and have other sources of substantial income. According to Social Security, having to pay taxes on benefits “usually happens only if you have other substantial income.” Types of such income include wages, self-employment income, earned interest and dividends. Even if a recipient is taxed on Social Security earnings the IRS has said that no one will pay federal income tax on more than 85 percent of Social Security benefits.
The Social Security Administration has the authority to withhold federal taxes from your benefit, but no authority to withhold state taxes. Many states do not tax Social Security benefits, but you should check your state’s tax laws for more information.
For more information about how Social Security determines whether federal taxes are owed on benefits visit: http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/493/~/paying-income-tax-on-social-security-benefits.
