Social security benefits may be taxable, whether the benefits are spousal / survivor / disability benefits or retirement benefits. Disability benefits are awarded only after a comprehensive medical records review to establish the disabling condition. In 2018, if your total income was more than $25,000 for an individual or $32,000 for a married couple filing jointly, you may have to pay income tax on your social security benefits. The benefits are not taxed below those income thresholds. The total amount of your benefits is shown on the Form SSA – 1099 (Social Security Benefit Statement) that you receive in January each year.
Here are some pointers.
- Your marital status and gross income are taken into consideration to calculate whether your social security benefits are taxable.
- You may not be taxed if social security benefits were your only income for 2018.
- If you received income from other sources, your benefits will be taxed only if your modified adjusted gross income (MAGI) is more than the base amount for your filing status.
Let us look at social security disability benefits and whether these are taxable. Whatever income a person makes, he/she will not have to pay taxes on more than 85% of their social security disability income.
- 50% of the disability income will be taxable if you earn more than $ 25,000 but less than $34,000 and file as an individual; or more than $32,000 but less than $44,000 and file jointly.
- If you earn more than $34,000 if filing as an individual, or more than 444,000 if filing jointly, you will have to pay taxes on 85% of your disability income.
Back Payment and Taxes
Back payments are typically paid as a lump-sum amount by the Social Security Administration (SSA). If you claim this amount as a single year’s income, you will automatically be in a higher tax bracket and will have to pay more taxes than you are actually liable for. Ideally, file amended returns for the years that the back payment covers, and only claim the current year’s payment on your current year’s income tax return.
The majority of SSDI recipients do not have to pay taxes on that income because people on disability benefits have little or even no other source of income. In fact, a medical record analysis made by the SSA should prove that the claimant has a disability that prevents him/her from doing the work they did previously and it must be determined based on age, education, experience and other factors. The recipient must presently not be working,or working so little that his/her monthly income is below $1,090. Moreover, his/her disability must be included on the SSA’s approved list, or otherwise determined to be of equal severity to a condition on the list.
Benefits Could Be Subject to State Taxes
While most U.S states do not tax social security benefits, including disability benefits, 13 states do tax social security benefits. These are Minnesota, Montana, Missouri, Nebraska, Colorado, Connecticut, Kansas, Utah, Vermont, West Virginia, New Mexico, North Dakota and Rhode Island. Most of these states tax your benefits based on similar income criteria to the ones used by the SSA. Some states have their own formulas and rules, especially for disability benefits.
Things to Note
- The SSA is not required to hold taxes back from your social security disability payments. You can request the SSA to hold taxes back for you by contacting them. You can choose to have 7%, 10%, 12%, or 22% of your total benefit payment withheld. Alternately, you can file quarterly estimated tax returns with the IRS.
- SSI or Supplemental Security Income, being a needs-based benefit, is never taxable.
- If you have a child that receives social security survivor or dependent benefits, those payments do not count towards your taxable income. That income becomes taxable if the child has sufficient income (from social security or other sources) to have to file a return in his or her own name.
Social security benefit applicants can approach a social security lawyer to understand the filing process and also whether they are eligible for disability benefits. A disability lawyer will arrange to have all the medical records collected and reviewed by a medical record review company. This review process will help determine if the particular disability is compensable. Since the claim filing process as well as the appeals process (if the claim is denied) will be professionally done, disability applicants have a better chance of receiving the due benefits.