Taxation of Social Security Disability Benefits

April 15 is the IRS Tax Deadline. Every year as the deadline approaches, I get calls from clients who have recently been awarded disability benefits telling me that they received a 1099 from Social Security and wondering if they have to pay taxes on their benefits. The answer to that question is both simple and unsatisfactory: “It depends.”

If you only receive Supplemental Security Income (SSI) benefits, your benefits are not taxable. If you receive Social Security Disability Insurance (SSDI) benefits, whether or not you will have to pay taxes depends on your filing status and household income.

Your disability benefits may be taxable if the total of one-half of your benefits plus all of your other income, including tax-exempt interest, is greater than the base amount for your filing status. Put more simply, to determine if your benefits are taxable, take half of the Social Security you received during the year and add it to your other income, such as pensions, wages, interest, dividends, and capital gains. If you are single and that total comes to more than $25,000, then part of your Social Security benefits may be taxable. If you are married filing jointly, take half of your Social Security benefits plus half of your spouse’s income and add that to all your combined income. If that total is more than $32,000, then part of your Social Security may be taxed.

How much will be taxable depends on your filing status, but if you think you might owe taxes on your disability benefits, your best bet is to consult a tax professional.