Are Social Security disability benefits taxed?

As Benjamin Franklin once famously noted, nothing can be said to be certain, except death and taxes. Of course, working Americans pay state and federal taxes automatically through payroll deductions. Part of these taxes go towards funding the Social Security system. Therefore, individuals across the U.S. may assume that, should they need Social Security Disability (SSD) benefits in the future, these benefits have already been taxed. However, is this really true?

While often individuals do not have to pay income taxes on their SSD benefits, there are instances where they do. Individuals may have to report their SSD benefits as income on their federal income tax returns based on a combination of both their SSD benefits and any other types of income they may earn.

In general, an individual will take 50 percent of their SSD benefits and then combine it with their other sources of income. If this amount is under $25,000 for those who file singly or $32,000 for those who file jointly, that individual will not owe federal income taxes on their SSD benefits.

Nonetheless, if their combined benefits and income exceeds these amounts, the individual may need to report at least some of their SSD benefits on their federal income tax return. Generally, for those who file their federal taxes singly and make between $25,000 and $34,000 annually, as much as 50 percent of their SSD benefits may be taxable. Those who make more than that may have as much as 85 percent of their SSD benefits taxed. The corresponding income amounts for those who file their federal taxes jointly are between $32,000 and $44,000.

Residents of any state seeking SSD benefits may be relieved to hear that most recipients do not meet these income levels at all, and thus their benefits are not taxed. But, it is important to know whether you need to report your benefits as income, so that you can pay them on time, without incurring any penalties. Of course, this information is only general in nature — you may need to consult with an attorney to determine whether your benefits will be taxed.

Source: Fool.com, “Is Social Security Disability Taxable?,” accessed on June 5, 2016