Did you know that one out of every four Americans will be disabled by the age of 67 (SSA)? While it’s a hard pill to swallow, this could hurt your ability to earn income. Queue, Social Security Disability Insurance!

guide to taxesWhat is Social Security Disability Insurance? 

Social Security Disability Insurance (or SSDI) pays benefits to you and certain members of your family if you are “insured,” meaning that you have worked long enough and paid Social Security taxes (SSA). This is one of the largest federal programs that provides assistance to people with disabilities, and only individuals who have a disability (and meet medical criteria), can qualify for the benefits.

How does Social Security Disability Insurance work?

The amount you receive on a monthly basis is determined by your lifetime average earnings covered by Social Security. It will depend on your work and earnings history that was reported to Social Security, and the age at which you become disabled. The Social Security Administration (SSA) provides a Disability Planner to help you determine how much you will receive.

The ways these benefits are calculated are actually revised annually by the SSA. You can learn more about this on the SSA website. In addition to the disability planner, SSA also has a disability starter kit that prepares you for your disability interview or online application. The SSA has a Disability Starter Kit to help you get ready for your disability interview or online application. The kit includes information about what SSA will need from you, what they intend to ask you, and general information about disability programs and the decision-making process.

How does applying for Social Security Disability Insurance affect my taxes?

There are two main types of disability benefits that are available through the SSA: Social Security Disability Insurance (SSDI) benefits, which are based on your work history, and Supplemental Security Income (SSI) benefits, which are provided for low-income individuals (Disability Benefits Help). The majority of both types of benefits are not taxable.

If you or your spouse receive SSDI benefits as well as another source of income, you might be taxed for your benefits. Something important to note is that if you had enough income for your disability benefits to be taxed, then you probably wouldn’t qualify for SSI benefits anyway (since they are meant for low-income applicants). That being said, the income limits for your disability benefits almost always apply to SSDI recipients.

These income tax limits result in about half of your benefits being taxed, whether you’re filing individually or with a spouse. 

  • Over $25,000 and less than $34,000 for an individual 
  • A combined income over $32,000 if married and filing jointly

In higher income brackets, 85% of your benefits could be taxed, including: 

  • Over $34,000 if single
  • Over $44,000 if married

If your income exceeds these limits, the benefits will be taxed at your marginal tax rate, which means you’d be paying about 10-15% on 50-85% of your benefits or 33-35% of your benefits for a higher income.

Some types of disability benefits could result in back payments. These are payments for the time you were disabled and not receiving benefits, and/or one-time death payments for the survivor of a worker receiving benefits who passed away. Typically these benefits are paid in a lump sum through the SSA. These payments are also subject to taxes, which could result in a higher income bracket. To work around this, you might be able to apply back payments to a previous year, if it was during the time period for which your benefits apply. 

Looking for additional info? We’re here to help! You can find more information about Social Security Disability Insurance here, or take a look at our list of additional resources

Disclaimer: This information should not be used as official tax advice. If you have any questions regarding your taxes, contact your tax preparer for more information.