Social Security disability benefits may be taxable if you have other income that causes you to exceed a certain threshold. However, the majority of people who receive Social Security benefits do not have to pay tax on their benefits because most people who meet the strict program eligibility criteria have little or no additional income.
Key points to remember
- Many Americans rely on Social Security Disability Income Benefits (SSDI) for financial support.
- If your total income, including SSDI benefits, exceeds the IRS thresholds, the amount that exceeds the limit is subject to federal income tax.
- Most states do not tax SSDI benefits, but 13 states do (to varying degrees).
How Social Security Disability Works
President Franklin Roosevelt included the Social Security program as part of his New Deal government reforms of the 1930s. The purpose of the New Deal was to get the country out of the Great Depression and restore its economy. Social Security was designed to provide a financial safety net for older Americans and people with disabilities.
Most people who receive Social Security disability benefits fall into the first category. They have reached at least the minimum retirement age of 62 and have applied to receive monthly benefits based on the money they put into the system during their working years.
People who receive social security benefits because of a disability do not need to be a particular age to receive benefits (although they must have contributed to the social security system while working). Instead, their disability must meet strict criteria set by the Social Security Administration (SSA).
First, the SSA says, “Your condition must severely limit your ability to do basic work such as lifting, standing, walking, sitting, and remembering, for at least 12 months. The condition should prevent you from doing the kind of work you used to do, and depending on your age, education, experience, and transferable skills, you may not be able to do other work.
In addition, you must not currently work or work so little that your monthly income is less than $ 1,310 in 2021 ($ 1,350 for tax year 2022). The specific type of disability must be included on the approved SSA list or otherwise found to be equal in severity to a condition on the list.
When disability benefits are taxed
The taxation of Social Security disability benefits depends on your total income. You will avoid taxes if your total income, which is determined by adding half of your disability benefits to all other sources of income, including tax-exempt interest, is below the threshold set by the Internal Revenue Service. (IRS). If you are single, the threshold amount is currently $ 25,000. If you are married and file jointly, it is $ 32,000.
State taxes on disability benefits
Most states do not tax Social Security benefits, including disability benefits. As of 2020, however, a total of 13 states enjoy tax benefits to some extent. These states are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. Most of these states establish income criteria similar to those used by the IRS to determine the amount, if any, of your disability benefits that are taxable.