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Is Social Security Disability Taxable?

Last updated: April 12, 2023

When people consider applying for Social Security disability insurance (SSDI) benefits, one question that often comes to mind is: “Is SSDI taxable?” You will have to pay taxes if your household income exceeds your taxable income. In contrast, less than one-third of all SSDI recipients are required to pay taxes on their benefits.

SSDI And Federal Taxes

SSDI benefits may be subject to taxation. You may be raised to a higher tax bracket depending on the amount of income you receive. To qualify for Social Security Disability Insurance, you need to have a long-term disability with a limited income, hence why you may not have any other earnings to exceed this limitation.

Generally, SSDI benefits are taxable when combined with income from other sources, such as dividends or interest. They are also taxable when your spouse earns income. If this describes your situation, you must know when SSDI benefits become taxable.

As of 2020, SSDI payments are taxable for individuals who earn more than $25,000 per year or married couples earning more than $32,000 per year. Your income for SSDI is one-half of your benefits plus any other sources of household income. If you are single with no other sources of income or are married with an insufficient-paying spouse, you probably won't owe any taxes on your benefits.

If your household income is enough to owe taxes, a percentage of your SSDI benefits may be subject to tax. Depending on your total household income, either 50% or 85% of the benefits are taxable. In case your income exceeds the threshold, your SSDI benefits are taxed at the rate you choose - not 50% or 85%. Tax rates on marginal income are typically 15% to 25%, depending on your earnings.

Furthermore, it's important to consider that the amount of back pay you receive will increase your annual income even if you don't pay taxes on your monthly benefit. As a result, you may owe taxes the year you're first approved for benefits, but your tax liability will be eliminated later on.

An accountant can review your finances and suggest any steps you need to take to minimize your tax liability to prevent any unpleasant surprises.

SSDI and State Taxes

Laws for taxing SSDI benefits vary per state. The majority of the states do not tax Social Security benefits, including disability payments. Social Security retirement benefits are tax-free, and SSDI is a form of early retirement.

SSDI payments are only taxable in 13 states: Colorado, Minnesota, West Virginia, Connecticut, Kansas, Missouri, Nebraska, New Mexico, Montana, Rhode Island, North Dakota, Utah, and Vermont. 

Are you interested in learning more about the various options and programs that help people with disabilities? Read more of Disability Help’s resources on our website!

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Zoey Appleton
Zoey has worked with Cheri for years and has been creating the best articles not only for Disability Help but for our readers. Her job hits close to home for she has a brother with special needs. She hopes to see science and technology pave the way for a better life, with Disability Help to cover it and share it with those that need it.
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