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Social Security Disability Insurance (SSDI) benefits may be taxable if half of SSDI income plus any additional income exceeds $25,000 for single filers and $32,000 for joint filers. The amount you pay depends on your total income and tax bracket. You may also owe state taxes.
How to calculate whether your SSDI benefits are taxable
To find out whether your SSDI is taxable, add the following two figures:
All other sources of income. This includes earned income and investment income, for example.
If the total exceeds the limits listed below, your benefits could be taxable.
If your tax status is:
Then your benefits may be taxable if half your benefits plus your other income exceeds:
Single, head of household, or a qualifying surviving spouse
Married filing jointly
Married filing separately and you lived apart from your spouse for the entire year
Married filing separately and you lived with your spouse at any time during the tax year
What is the tax on SSDI benefits?
Generally, as your total income increases, the percentage of your Social Security income that’s subject to federal taxes will increase as well. The maximum percentage of Social Security income that’s subject to tax is 85%.
The amount of tax you’ll owe on that portion of your Social Security income depends on your tax bracket. Your income from all taxable sources and any tax deductions you qualify for determine which tax bracket you’re in.
Depending on where you live, you might also owe state taxes on your benefits. Tax rates and potential exclusions or deductions for Social Security income vary from state to state. Some states don’t have income taxes.
Taxes on SSDI back payments
The Social Security Administration (SSA) takes months to process SSDI applications. The minimum waiting period is generally five months. If the SSA denies your application, you may appeal; an eventual approval can stretch your waiting period to more than a year.
In all of these instances, the SSA may send you a payment that covers the time it was processing your application. That lump sum amount is taxable.
A large payment could trigger an unexpectedly large tax bill. You pay taxes on the back payment for the tax year in which you receive it, even if a portion of the payment was for a previous tax year.
Although you can’t amend a prior year’s tax return for this, the Internal Revenue Service gives you the option to calculate what you would have owed if the back payments occurred in the prior tax year. If that results in a lower tax bill, you can pay that lower amount instead.