Many clients ask me after they get their Social Security disability benefits if they will have to pay income taxes on that money. In general, the answer is yes. But the amount a client may owe is usually going to be very small, if anything.
Warning: Math Ahead
The IRS considers disability payments to be income. For that reason, there is no blanket exemption from federal taxation. As with other taxes, though, the IRS uses a formula to determine how much the tax will be. The key inquiry is how much other income the client has. The specific numbers are as follows (thanks to Beth Laurence of Nolo.com for this chart):
Individuals
| Amount of Monthly Income | Portion of SSDI to Be Taxed |
| 0-$2,083 | 0% |
| $2,084 – $2,833 | 50% |
| $2,834 and up | 85% |
Married Couples
| Amount of Monthly Income | Portion of SSDI to Be Taxed |
| 0-$2,666 | 0% |
| $2,667 – $3,666 | 50% |
| $3,667 and up | 85% |
The Devil Is In The Details
If the IRS does consider a portion of your Social Security disability benefits taxable, that amount gets added to the rest of your income. That amount is taxed at whatever bracket your overall income places you in. In other words, even if you had the highest-amount of income on the above chart, you won’t pay 85% of your Social Security disability benefits in taxes. The current highest tax bracket is just under 40%. You would need to have more than $418,000 in income to get there. If you have that much income, your monthly Social Security disability check is probably not going to change your financial picture much.
Check If Your State Is Among The Dirty Dozen
Most states do not tax Social Security disability benefits at all. For those 12 states that do, most will follow the same rules as the IRS in determining tax liability for Social Security benefits.
States That Tax Disability Benefits (thanks again to Beth Laurence and Nolo.com)
| Connecticut | Nebraska |
| Colorado | North Dakota |
| Iowa | Rhode Island |
| Kansas | Utah |
| Montana | Vermont |
| Minnesota | West Virginia |
H & R Block Is On Almost Every Corner–So No Excuses
As with anything related to calculating and paying taxes, this gets complicated fast. I usually advise people who are getting Social Security disability benefits to consult a tax preparer. Even if you usually prepare your own returns, getting Social Security disability benefits is a solid reason to get professional help. If a tax preparer says you make too little for your benefits to be taxed, you can likely return to filling out your own returns in the future.
I know very little about taxes. This information is intended only to provide very general advice. If you have any doubts at all about your taxes, please contact the proper professional.
