Are Social Security Disability Benefits Taxed?

Tax season is around the corner and many people want to know: are Social Security disability benefits taxed? Well, this question can be difficult to answer, as there are many variables to consider. Some states, like Florida and Texas, do not impose any sort of state income taxes, and therefore Social Security Disability Insurance (SSDI) isn’t taxed either. Some states will tax SSDI based on the person’s adjusted gross income (AGI), and other’s based on the federal rate. Three states even fully tax Social Security benefits. However, a majority of states, including Michigan, maintain a fair balance – imposing income taxes while exempting total tax liability for Social Security benefits. This doesn’t mean you’re off the hook just yet. You benefits may be safe at state level, but the IRS will always want a piece of what you’re earning. You need to determine whether or not you make enough in income to clear the filing threshold before you can see if your benefits will be taxed this year.

SSDI & Federal Taxes

How hard your SSDI benefits will be hit will always depend on your income. As many as two-thirds of all taxpayers on disability do not even end up paying federal taxes on their benefits because it’s their only source of income. The one-third that do end up paying, often only do so because of additional income, or the income of their spouse (if filing jointly). Here is a simple breakdown to help you understand what you may owe based on various income brackets:

• Single filers earning less than $25,000 in combined income per year will likely not have to pay taxes on SSDI benefits;
• Single filers earning between $25,000 and $34,000 in combined income per year may face taxation on up to 50 percent of their benefits;
• Single filers earning more than $34,000 per year in combined income may face taxation on up to 85 percent of their benefits;
• Joint filers will have to have earned between $32,000 and $44,000 in total combined income in order to face an up to 50 percent taxation on their benefits;
• Joint filers earning more than $44,000 in total income a year will face taxation on up to 85 percent of their benefits.

If you are still confused about whether or not your Social Security disability benefits will be taxed this year, or you have any other specific questions regarding anything to do with Social Security, we encourage you to reach out to our knowledgeable legal staff at Aiello Law Group for the answers you seek. Call us, today, at 313.964.4900 or fill out the form in the sidebar or on our contact page, and learn more about how we can help you.