Income Taxes And Social Security Disability Benefits
By Kenton Koszdin on March 6, 2023 | In Disability Insurance
Many people receiving Social Security Disability benefits (SSDI) wonder, “Are disability benefits taxable?” The answer to “Is SSDI taxable?” depends on other household income.
Take a closer look at federal and California state regulations for Social Security taxes 2023 to learn how a California SSD lawyer can help. Many people don’t pay taxes on SSDI because they don’t have other income, but in some situations, you might, such as married couples where one spouse has other income.
When Is Social Security Income Taxed?
Is Social Security Disability income taxable by the IRS? The total income of your household is what could deem your disability income taxable.
Suppose your total income, which includes one-half of your disability benefits plus all other sources of income — including a spouse’s income and tax-exempt interest — is below the IRS threshold. In that case, you won’t pay taxes on it.
For single individuals, the threshold is $25,000; for married couples filing jointly, it is $32,000. Household income over these caps means that you will pay taxes on the income. How much of my Social Security is taxable will depend on your household’s total income.
How Much of My Social Security Is Taxable in Los Angeles?
Los Angeles residents may also wonder how much of SSDI is taxable under the California tax code. The type of benefits you receive is what makes your disability benefits taxable or not.
Social Security benefit taxation applies only if you receive SSDI benefits. People may also receive Supplemental Security Income (SSI), which caps at $914 per month for an individual and $1,371 for married couples if both spouses are eligible. This is a Social Security benefit that is not taxable; Supplemental Security Income is tax-free.
When you ask the question, “Does Social Security get taxed?” it’s important to clarify whether you’re referring to Supplemental Security Income or Social Security Disability benefits, which fall under the same tax rules as Social Security family and survivor benefits and Social Security retirement.
Disability benefits are potentially taxable under the same tax rules as Social Security retirement, family, and survivor benefits. If your taxable Social Security benefit boosts your household-adjusted gross income into a taxable bracket, you will pay federal income taxes depending on your income.
Are Social Security Disability benefits taxable? The following tables can give you a better idea of whether your benefits are taxable and what percentage you might be required to pay.
Individuals
| Monthly Income | Annual Income | Maximum SSDI Taxable Amount |
|---|---|---|
| 0 – $2,083 | 0 – $25,000 | 0% |
| $2,084 – $2,833 | $25,000 – $34,000 | 50% |
| $2,834+ | $25,000+ | 85% |
Married Couples
| Monthly Income | Annual Income | Maximum SSDI Taxable Income |
|---|---|---|
| 0 – $2,666 | 0 – $32,000 | 0% |
| $2,667 – $3,666 | $32,000 – $44,000 | 50% |
| $3,667+ | $44,000+ | 85% |
Are Social Security Disability Benefits Taxable at the State Level?
Is Social Security Disability taxable at the state level? In California, the answer is no. However, you may have SSDI taxable income if you received disability benefits from states that assess state income tax on SSDI. If this applies to you, then your answer to “Do I have to pay taxes on disability income?” is yes.
If you file income tax returns in multiple states, your Social Security Disability taxable rate depends on how long you resided in each.
Is Social Security Disability Income Back Pay Taxable?
SSDI taxable back pay refers to the taxability of Social Security Disability payments that were owed to the individual pending application approval. These are usually issued as a lump-sum payment and can increase the recipient’s taxable income for that year. So if you received back pay, the answer to “Is disability insurance taxable?” is probably yes.
You can apply the lump sum payment to Social Security Disability benefits owed from your tax return for the prior year. This reduces your total income for the year that you receive back pay. However, this income is not taxed in California.
Reporting Your SSDI Income on Your Federal Tax Return
Knowing how much SSI Disability taxable income you have and how taxes on SSDI are reported ensures that you properly fill out your SSI tax form when filing your federal income tax.
You report your Social Security Disability benefits in Box 5 of Form SSA-1099, the Social Security Benefit Statement. You will receive this form annually in the mail from the Social Security Administration.
Is disability taxable income? Yes, depending on the income level you report in Box 5 of Form SSA-1099 or on line 5a on your Form 1040 or Form 1040-SR.
Reducing Your Tax Liability on Social Security Benefits
Is Social Security Disability income taxable? Even if your answer is yes, there may be ways that you can reduce your tax liability on your benefits.
There are benefits for people who have their SSDI taxed. A tax professional or financial advisor can help you prepare your taxes and find exemptions you may not know about. Or an attorney with experience helping people who receive Social Security Disability Insurance can provide guidance for tax exemptions.
One of the easiest ways to avoid paying tax on Social Security Disability Insurance is to maintain a total household income below the taxable threshold.
For example, if you are planning to claim retirement benefits, then you may lower your tax burden through savvy utilization of Roth IRAs — retirement accounts that you can fill with after-tax dollars. When you withdraw money from a Roth IRA, it’s tax-free because you’ve already paid taxes on that amount.
Monies withdrawn from a Roth IRA are not included as part of your provisional income when determining are SSDI benefits taxable. But any withdrawals from a traditional IRA or 401(k) will be taxed.
How Can Kenton Koszdin Law Office Help Me?
Any accident, injury, or progressive disability can prevent you from being able to perform your essential job duties or even working at all. The legal team at Kenton Koszdin Law Office is here to protect people who qualify for Social Security Disability Insurance and supplemental security income and others who are disabled or otherwise unable to work in California.
Our primary goal is to help our clients get as well as possible, both physically and financially. Contact our SSDI taxability professional today for a free consultation. Call 818-293-4980 or visit us online.
