The IRS May be Charging Disability Taxes If You Make Too Much

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disability taxes

Paying taxes for disability benefits depends on an individual’s annual income, which can come from benefits, investments, or retirement income. However, knowing what the income limits are, if you qualify for exemptions, or what requirements are needed can help ensure that you’re prepared when you file your taxes.

Let’s Begin.

Income Taxes and your Social Security Disability Benefits| Do You Pay Disability Taxes?

The Social Security Administration (SSA) outlines the standards regarding taxes for Social Security benefits. The basic rules for federal disability taxes are as follows:

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  • Up to $25,000 – you will not pay SSD tax
  • Between $25,000 and $34,000 – you may pay SSD tax on up to 50% of your benefits
  • Greater than $34,000 – you may pay SSD tax on up to 85% of your benefits
  • If Married and your combined income is below $32,000 – you will not pay SSD tax
  • Married and your combined income is between $32,000 and $44,000 – you may pay SSD tax on up to 50% of your benefits
  • Combined income is greater than $44,000 – you may pay SSD tax on up to 85% of your benefits

For example, if you file individually with an income of $60,000, you will pay SSD tax on 85% of your annual benefits. If you receive benefits of $1,500 per month for twelve months, 85% of your annual benefits would be $15,300. Therefore, you would pay taxes for disability benefits on $15,300.

The standards for the SSA listed above are for federal taxes only. If you live in Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, North Dakota, Vermont, Utah or West Virginia, you may be required to pay additional state tax. For information on state income taxes, contact your local SSA agency, or consult an attorney that specializes in disability benefits.

How Much of Social Security is Taxable?

If you rely exclusively on your Social Security checks, you likely won’t need to pay any disability taxes on your benefits. However, if you have other sources of income, such as from a part-time job, a 401(k), or other investments, then you should expect to pay income taxes on your Social Security benefits.

Generally, a quick way to calculate your disability taxes on your Social Security income is to calculate your combined income. Simply take half of your benefits and add that amount to all your other income, including tax-exempt interest (combined income = adjusted gross income + non-taxable interest + half of your Social Security benefits).

Filing Your Disability Taxes

If your combined income is above $25,000 as an individual or $32,000 as a married couple with combined income, you will need to pay at least some disability tax. Once you calculate the amount of your taxable Social Security income, filing your income tax is easy:

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  • Enter your combined income amount on your income tax form.
  • Find the total amount of your benefits – box 3 of your SSA-1099 form
  • Enter the total amount of your benefits on line 5a of form 1040
  • Total amount of taxable benefits on line 5b of form 1040

If you’re concerned about your income tax burden in retirement, consider a tax-advantaged retirement savings account that allows you to withdraw your savings tax-free. Traditional individual retirement accounts (IRA) and Roth individual retirement accounts provide tax advantages for retirement savings.

With traditional IRAs and 401(k) plans, you are required to begin withdrawing money when you are 70.5 years old. With a Roth IRA, you can withdraw money at any age, and since you pay taxes on the money before contributing it into your account, you won’t pay any taxes when you make a withdrawal. Creating a Roth IRA can increase your retirement income without increasing your income taxes.

Do You Pay Disability Taxes After Age 66?

Waiting until you’re 66 years of age doesn’t mean that your social security benefits aren’t taxable. The reason that 66 is important is because it marks the age where you won’t have to pay anything back if you earn over the income limit.

If you start receiving benefits at age 66, you get 100 percent of your monthly benefit. If you delay receiving retirement benefits until after your full retirement age, your monthly benefit continues to increase by a certain percentage every year. For example:

  • If you start receiving retirement benefits at age 67, you’ll get 108 percent of the monthly benefit because you delayed getting benefits for 12 months
  • At age 68, you’ll get 116 percent of the monthly benefit because you delayed getting benefits for 12 months
  • 69, you’ll get 124 percent of the monthly benefit because you delayed getting benefits for 12 months
  • 70, you’ll get 132 percent of the monthly benefit because you delayed getting benefits for 48 months
  • When you reach age 70, your monthly benefit stops increasing even if you continue to delay taking benefits.

For taxable income, your adjustable gross income is still calculated based wages, dividends on investments, pensions, and any other income sources other than Social Security benefits that you’ve earned. If you have any municipal bonds in your investment portfolio, then you’ll probably also have non-taxable interest. Certain savings bonds may be tax-exempt, as well.

Contact an Attorney for SSD Tax Requirements

Attorneys that specialize in disability benefits are prepared to answer all of your questions in regards to Social Security disability taxes. They can help you organize the right information, complete the right documentation, calculate your disability taxes, and make sure you get the benefits you deserve.

At Dyer, Garofalo, Mann & Schultz L.P.A., our attorneys specialize in disability cases in Ohio, Indiana, and Kentucky. We understand how important it is to file your disability taxes correctly, and are dedicated to helping you maximize your benefits so you can take care of your future, and the future of your family.


Quick Answers

When Do You Pay Taxes on SSD?

Income up to $25,000 – you will not pay SSD tax
Between $25,000 and $34,000 – you may pay SSD tax on up to 50% of your benefits
Greater than $34,000 – you may pay SSD tax on up to 85% of your benefits
If married and your combined income is below $32,000 – you will not pay SSD tax
married and your combined income is between $32,000 and $44,000 – you may pay SSD tax on up to 50% of your benefits
Combined income is greater than $44,000 – you may pay SSD tax on up to 85% of your benefits

How to Do File Taxes on SSD?

Enter your combined income amount on your income tax form.
Find the total amount of your benefits – box 3 of your SSA-1099 form
Enter the total amount of your benefits on line 5a of form 1040
Amount of taxable benefits on line 5b of form 1040

Are Social Security Benefits Taxed After Age 66?

Waiting until you’re 66 years of age doesn’t mean that your social security benefits aren’t taxable. The reason that 66 is important is because it marks the age where you won’t have to pay anything back if you earn over the income limit.


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