While getting ready to fill out a disability claim, or even if you're already receiving benefits, you may ask yourself, "Do I have to pay taxes on my disability benefits?" This question may be causing some anxiety for you.
But rest assured, if your only income comes from Social Security benefits, then no, you typically don’t have to pay taxes on your benefits.
The average disability benefit amount in 2022 is $1,358 per month. That comes out to $16,296 annually, which is much less than the taxable income amount.
That said, it’s a different story if you have additional income.
Here’s what we’ll be unpacking in this article:
- How federal taxes on Social Security benefits are calculated
- How disability backpay is taxed
- Which states tax Social Security benefits
- Income tax and SNAP benefits
Let’s start with how the Federal government taxes Social Security benefits.
Federal Taxes on Social Security Disability
In 2022, the government made the highest cost-of-living adjustment in 40 years due to the rise in inflation. Social Security and Supplemental Security Income (SSI) benefits increased 5.9%.
Even so, disability benefits payments are modest. This is especially true if you are disabled and receiving SSI. The maximum SSI payment is only $841 for an eligible individual. That’s $10,092 annually, less than the individual Federal Poverty Level of $13,590 for the 48 contiguous states and D.C.
Note that SSI payments are not taxable, even if you have some other income.
Therefore, we will not be discussing SSI in this article. You can read our article about how to apply for SSI disability income if you want to learn more about SSI. When we talk about taxes on disability benefits, we mean Social Security disability insurance (SSDI).
Though disability benefits payments are modest, any amount of compensation helps those who are unable to work due to their disability. As mentioned at the very beginning of this article, if your only income is from Social Security benefits, you most likely don’t have to pay taxes on it.
For those who do have sources of income aside from SSDI, the situation may be a bit different.
Those who are eligible for SSDI may still work part-time. The key term here is substantial gainful activity (SGA). You cannot qualify for SSDI if you are engaging in SGA. That is, if you’re making over a certain amount of income each month, you are not eligible for SSDI.
The monthly SGA amount in 2022 is $2,260 for the statutorily blind and $1,350 for non-blind individuals.
We’ve written elsewhere about working part-time while collecting disability benefits, so we won’t do a deep dive here. For the purposes of this article, simply know that you could be earning extra income while receiving SSDI benefits… and finding yourself having to pay income taxes.
So, how does the Federal government calculate taxes for income received from Social Security?
Guidelines for Federal Income Taxes and Your Social Security Benefit
As we said, if you have any other income that must be reported on your income tax return, you may have to pay taxes on your Social Security disability benefits as well.
However, you will never pay taxes on 100% of your Social Security benefit.
At the most, you’ll pay tax on only 85% of your benefit if you are over a certain income threshold.
According to the Social Security Administration, if you as an individual have a combined income between $25,000 and $34,000, you may pay income tax on up to 50% of your benefits. You’ll pay tax on up to 85% of your benefits if your combined income exceeds $34,000.
For married couples filing jointly, the combined income threshold is higher at $32,000. Between $32,000 and $44,000, you may pay income tax on up to 50% of your benefits. If your combined income is greater than $44,000, you’ll pay taxes on up to 85% of your benefits.
If you’re married but filing a separate tax return, you will probably pay taxes on your benefits.
Please note that your disability benefits will not be taxed at a rate of 50% or 85%.
Your benefits will be taxed at your marginal tax rate based on your income, which is typically between 15% and 25%.
Social Security’s term “combined income” means something quite specific. You may be wondering what is meant by “combined income.” Here is Social Security’s equation for that:
Your adjusted gross income (AGI)
+ Nontaxable interest
+ 1/2 of your Social Security benefits
= Your “combined income”
Let’s say you work part-time and make $969 each month (less than the trial work period amount). You have no tax-exempt interest income. Your SSDI monthly payment is average at $1,358.
We’ll calculate based on annual income. So if your adjusted gross income is $11,628, you have $0 in nontaxable interest, and your SSDI benefit comes out to $16,296 annually, the equation will be…
$11,628 + 0 + 8,148 = $19,776 in combined income
For an individual, this is well below the minimum income threshold for taxes.
But say you start earning a little more, less than the SGA amount but still more, about halfway through the year.
You make $1,325 each month starting in June. You still have no nontaxable interest payments, and your SSDI payment stays the same.
When you run the calculation, you still remain below the taxable income threshold.
If you’re collecting the maximum monthly disability benefit amount of $3,345, obviously the calculations will run a little differently.
If you earned only $200 each month at a part-time job, but received the maximum benefit, your combined income would put you over the income threshold and you’d have to pay taxes on your Social Security benefit.
The truth is, not that many people receive the maximum monthly disability benefit. Hopefully, that makes you feel a little less uneasy.
You do not have to keep track of how much you receive in benefits yourself. At the beginning of each year, you will receive a Form SSA-1099k (Social Security Benefit Statement) that shows the amount of benefits you received the year before. You can use the Benefit Statement when you complete your federal income tax return to figure out if your benefits are subject to tax.
The IRS also provides a very handy calculator so that you can determine whether your disability benefits are taxable.
There are certain situations in which your income may appear higher one year because of how Social Security paid your disability benefits. We’ll be addressing this type of situation in the next section.
Does Social Security Disability Backpay Get Taxed?
Let’s say you were approved for disability benefits late last year. Social Security pays you a large lump sum to make up for all the months you waited to receive the approval. The problem is that half the money was for the tax year before the year that you receive the approval for your disability claim.
So now it looks as though your income was high last year, and you’re worrying that you’ll have to pay taxes on your disability backpay.
What are you supposed to do?
The good news is that Social Security does allow you to attribute some of that backpayment to previous years.
Don’t forget, however, that many people don’t owe taxes on their backpay because their income is still low. Unless your backpay puts you over the income tax threshold, there’s really no need to worry about backpay being taxed.
But what do you do when your backpay and additional income are over that threshold?
The IRS rules account for this. You’re allowed to allocate some of the backpay to the year you should have started receiving benefits. You do not have to “amend” your prior year tax returns to do this.
The Form SSA-1099 will state in Box 3 how much of the disability backpay you were owed for each of the previous years you accrued it.
If the backpay attributable to a previous year combined with the income for that year is less than the threshold—$25,000 for an individual and $34,000 for a married couple filing jointly—then you do not owe taxes on the disability backpay.
You can look at IRS Publication 915: Social Security and Equivalent Railroad Retirement Benefits to learn more, but it can be difficult to parse through all the information. If you really want to make the necessary calculations, your best options are to speak with a tax professional or use tax preparation software.
Now that you have a better idea about how federal taxation of disability benefits works, let’s turn to state taxation.
Does My State Tax Social Security Disability?
Not every state taxes Social Security disability benefits, but there are twelve that do so according to certain guidelines.
The following states tax Social Security benefits:
- New Mexico
- Rhode Island
- West Virginia
None of these states will tax income that includes Social Security disability benefits when your income falls below the federal taxable income threshold.
In other words, if the only income you receive comes from SSDI, then you will not be subject to state income taxes. Again, if you receive only SSI payments, your disability income is tax exempt.
To outline all the differences in taxation for the states listed above is beyond the scope of this article. However, Kiplinger has an informative article on the taxation criteria of the twelve states.
For the sake of brevity, we’ll simply note that most of the states have a fairly high taxable income threshold. In reality, the criteria really only applies to those receiving Social Security retirement benefits as well as significant income from their retirement accounts and other investments. The guidelines don’t really apply to most disability benefits recipients.
That being said, Montana and Utah are the two states to pay attention to.
Currently, though Montana’s method of calculating state income tax is similar to the method used for federal tax returns, there are important differences. In practice, this means that the Montana taxable amount can differ from the federal taxable amount.
However, starting in 2024, Montana will tax Social Security benefits to the same extent that the federal government does.
In Utah, Social Security benefits are included in the taxable income to the same extent as at the federal level. But there’s a nonrefundable tax credit available for Social Security beneficiaries.
The bottom line is that if you live in one of the above-mentioned twelve states, you should do your homework and find out what the taxation guidelines are.
Income Taxes and SNAP Benefits
There is one last question in this article that we found pertinent given that many people receiving disability benefits are also eligible for SNAP. That is, “Do my SNAP benefits count as taxable income?”
The short answer is no.
SNAP benefits are tax-exempt and do not count toward your combined income. The program was designed specifically to address the nutritional needs of those with low income and resources. To count SNAP benefits as taxable income would undermine the purpose for which it was created.
Though our article that explains SNAP does so in terms of SSI eligibility, there is plenty of good information there about how SNAP works. We encourage you to read it if you want to learn more about the program.
If you are eligible for SSDI and have low income and resources, you may be eligible for SNAP as well.
According to the USDA, to qualify for SNAP if you’re a household of one, your gross monthly income can be no more than $1,396 and your net monthly income can be no more than $1,074.
For most cases, your household must meet both of those income limits in order to qualify for SNAP.
What makes the difference between gross and net income? While gross income is your household’s total income before any deductions, net income is gross income minus allowable deductions.
So if your monthly SSDI payment meets the above income limits and you meet the other eligibility criteria, then you will most likely receive SNAP benefits in addition to SSDI.
Get Disability Benefits Help
If you haven’t yet started the process to apply for disability benefits, we encourage you to take a minute and complete a disability case evaluation.
At BenefitsClaim.com, we offer a free online disability case evaluation so that you can have peace of mind about whether you qualify for benefits.
Once you’ve completed the survey, you can choose to fill out your contact information so that someone from our team can contact you about your disability claim application.
By working with one of our experienced legal professionals, you can avoid simple errors on your application that could result in a delayed decision or even a denial. Our accredited representatives support you during every step of the process, and there are zero upfront costs to you.
We never charge an upfront retainer, document or medical record fees. Everything is done for you, at no cost to you.
Our mission is to help you get approved for every benefit you deserve. If you have any questions, you can always contact us at firstname.lastname@example.org.