In most cases, taxes are not taken out of disability benefits. This includes both Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). The Social Security Administration will never automatically withhold taxes. In fact, in most cases, you do not have to pay federal income taxes on these benefits at all. Pennsylvania also does not tax SSDI or SSI benefits.
However, if you receive SSDI benefits and also have additional income from investments, rental property, or even your spouse’s job, you may need to pay taxes. There are limits on how much you can make without filing taxes, and additional income can quickly push you over this limit.
Limits on How Much You Can Earn Without Paying Taxes
According to the Social Security Administration, about a third of all retirement and disability recipients must pay taxes on their benefits. This happens because they — or a spouse — make additional income above and beyond their SSDI benefits.
In general, you may need to pay federal income taxes on your SSDI benefits if:
- You are an individual who makes more than $25,000 per year (including your disability).
- You file jointly, and you and your spouse make more than $32,000 a year combined (counting disability benefits).
- You have a spouse but file separately.
Fifty percent of your SSDI benefits are taxable in this case.
If you are single (or are married, filing separately, and you and your spouse lived apart for the year) and your total income plus half your SSDI benefits is more than $34,000 for the year, 85 percent of your SSDI benefits are taxable. If you and your spouse file jointly and your total income plus half your SSDI benefits is over $44,000, 85 percent of your SSDI benefits are taxable.
Here are a few examples:
- You are single and make $500 per month. You also receive $1,000 in disability benefits. $1,500 x 12 is $18,000. You are exempt from taxes.
- You are married and file jointly. You make $500 a month and receive $1,000 in disability benefits. Your spouse makes $2,500 per month. You and your spouse make $48,000 per year. Up to 85 percent of your disability benefits are taxable.
If you believe you may need to pay taxes on your disability benefits, you can ask the Social Security Administration to withhold a percentage of your monthly payment. This works in the same way as an employer withholding taxes from your check. This is not a requirement but may be a good idea if you worry about putting enough aside to pay your taxes at the end of the year.
Social Security Disability Insurance Back Pay and Taxes
If you are like most people who qualify for Social Security disability benefits, the Social Security Administration initially denied your claim. You had to file an appeal and then received an approval during the appeals process. This means you may also receive a lump sum payment for back pay, covering the period between when you applied and when the Social Security Administration approved you for benefits.
Because the appeals process can take well over a year, back pay may be significant. This money may be taxable because it exceeds the allowed limits. Also, the amount may move you into the next tax bracket. This means you may pay a higher percentage in taxes the year you receive back pay.
Retroactive Pay and Taxes
Retroactive pay, covering up to a year of time you lived with your impairment before you applied for disability, can cause the same issue. You may need to pay additional taxes the year you receive retroactive pay, especially since you will likely also have back pay.
Taxes and Supplemental Security Income
You should not ever have to pay taxes on your SSI benefits. These need-based benefits only go to families who have an extremely low income and few assets. If you met the guidelines for someone who had to pay taxes on their disability income, you would not meet the qualifications for this program.
In addition, the Social Security Administration never issues SSI back pay as a lump sum. Instead, it pays it in installments spread several months apart. This can help you avoid having to pay taxes when the Social Security Administration first approves you for disability benefits.
Talk to a Pittsburgh Social Security Disability Lawyer Today
At Berger and Green, our Pittsburgh disability attorneys can help you understand the laws that apply to your Social Security benefits and address any concerns you may have about the amount or how the government taxes them. We can also help you fight a denial of benefits or represent you by helping you file an application.
Call our office today at 412-661-1400 for your free case evaluation, and to discuss your case with a member of our team.