Once Social Security Disability benefits are awarded, recipients often wonder about taxes. There are specific rules about paying taxes on disability payments, but it often depends on what benefits are being received. There are two different disability programs. One is based on an individual’s work history and how much they pay into the Social Security System, called “Retirement, Survivor’s and Disability Insurance (RSDI).” The other is based on financial need, and is called “Supplemental Security Income (SSI).” Generally, though not always, potential RSDI benefits exceed potential SSI benefits. It is possible, though rare, to be eligible for benefits from both programs, as often the benefits from RSDI put an individual over the SSI threshold for benefits.
Whether taxes must be paid on Social Security Disability benefits depends on total household income. A single person with total household income below $25,000.00, including Social Security benefits, is not required to pay any federal income tax on those Social Security benefits. Anything over that amount obligates the individual to pay taxes on a portion of his or her Social Security benefits.
If the individual receiving benefits is married and filing jointly, the threshold is higher. Total household income, including Social Security benefits, less than $32,000.00 results in no federal income tax obligation on the Social Security Disability benefits.
Given that SSI is needs-based, it is exceedingly unlikely that any SSI recipient would have to pay taxes on those benefits due to the asset restrictions on SSI eligibility. Those who receive RSDI benefits are far more likely to be required to pay federal taxes on their benefits depending on their total benefits and other income. Consult a Social Security Disability Attorney if you have questions about potential tax liabilities for any disability benefits you may receive.
By Adam Kachelski