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Social Security Disability and the IRS

Social Security disability insurance benefits, also known as SSD, SSDI, DIB or Title 2, are available to individuals who have worked long enough, and recent enough, to have the required work credits to entitle them to monthly benefits payments should they become disabled. These individuals must also prove they are “disabled” as defined by the Social Security Administration. SSD benefits provide a modest amount of money for people who are unable to work due to their disability. It can offer greater independence and financial freedom for people who would otherwise be dependent on others. You may be surprised, however, by the fact that SSD benefits can be taxed by the IRS.

Social Security Disability and the IRS Requirements

SSD benefits are taxable because they do not have tax-exempt status. Whether or not any of your income, whether it is SSD benefits, or any other type of income, is taxable, depends on the amount of income you report, your tax filing status, tax bracket, deductions and other variables. The fact that your income may be from SSD benefits does not matter when computing whether you have enough income to subject you to income taxes.

Benefit recipients who file a federal tax return as an "individual" (those who are single or people who are married and filing separately who lived apart from their spouse) and have income greater than $25,000 generally have to pay taxes. While people who are married and filing jointly may have to pay taxes if their joint income is above $32,000. People who are married but filing separately who did live with their spouse will generally has to pay taxes on their benefits. If the combination of all your income (SSD benefits and other income) comes out to less than the amounts listed herein then generally the IRS doesn't require you to pay income taxes. This is only general information and is not tax advice, for more information contact the IRS.

Tax Rates
How much tax you'll have to pay depends on your total income. Consult that IRS tax tables for your filing status and taxable income to determine your tax rate.

Withholding
To prevent yourself from owing a large lump sum at the end of the tax year, you can ask the IRS to withhold federal income tax from your Social Security Disability benefits. To do this, the IRS requires filing form W-4V, on which you can decide how much of your monthly benefit you want to have withheld. Options range between 7 percent and 25 percent. People who don't choose voluntary withholding have to pay estimated tax, just like self-employed workers.

Understanding how your SSD benefits interact with your taxes can be confusing. If IRS publications don't make sense to you and you want to know more about your situation, call 800-516-1314 to get the information you need.