If you are applying for SSD (Social Security Disability) benefits, you might ask: Are SSD benefits subject to taxation? It depends. You’ll need to have personalized advice provided by a San Diego disability attorney after that attorney has a chance to review your current situation.
SSD benefits are earned benefits that protect millions of disabled workers. Through payroll tax contributions, almost 156 million workers have earned SSD protection in case they become disabled and can’t work. More than eight million disabled workers now receive SSD benefits.
When are SSD benefits taxed? Keep reading this brief discussion of taxes and SSD benefits for that answer, but if you’re disabled and you’re seeking or receiving SSD benefits, you should obtain personalized advice from a San Diego disability lawyer.
What Are SSD Benefits and Who May Receive Them?
To qualify for SSD benefits, your medical condition must prevent you from working, and it must be expected to disable you for at least one year (or result in your death). The amount you can receive hinges on your average earnings prior to becoming disabled.
Social Security’s decision to reject or approve an applicant for SSD payments takes into account the applicant’s condition, age, and work history. These variables are used to calculate whether a benefits claim should be denied or approved.
As a rule of thumb, the more years you worked and the more you made, the more benefits you will receive (up to a maximum of $3,345 per month as of 2022). The SSA determines the amount of your SSD benefits based on your own earnings that were subject to the Social Security tax.
When Are SSD Benefits Taxed?
SSD benefits are not subject to taxation by the State of California. SSD benefits may be taxable by the federal government if you have additional income (like tax-exempt dividends or interest) or if your wife or husband earns income.
When additional income or a spouse’s income places you above a certain income level, your SSD benefits are taxable. As of 2022, as much as 85 percent of the Social Security Disability benefits you receive may be taxed if half of those benefits, combined with your additional income, surpass these income limits:
- $25,000 if you’re married, you didn’t reside with your spouse at any time in the tax year, and you and your spouse file separate tax returns
- $25,000 if you’re a head of household, single, or if you are a qualifying widower or widow
- $32,000 if you’re married and file a joint tax return
- $0 if you’re married, you resided with your spouse at any time during the tax year, and you and your spouse file separate tax returns
Married or Single? It Makes a Difference
If you’re married, and if you and your spouse file a joint tax return, you may report $32,000 of income before any of your Social Security Disability benefits will be subject to taxation.
If you’re single, you have to also include up to fifty percent of your SSD benefits as taxable if your income is from $25,000 to $34,000. Additionally, up to 85 percent of your Social Security Disability benefits must be included as taxable if your annual income surpasses $34,000.
If you’re married and file jointly, as much as half of your Social Security Disability benefits are subject to taxation if your yearly household income is from $32,000 to $44,000. If that figure surpasses $44,000 in a tax year, as much as 85 percent of your SSD benefits become taxable.
If any part of your Social Security Disability benefits are subject to taxation, your spouse’s earnings must be added to your income when you calculate your joint tax return.
How to Complete Your Tax Form
The Social Security Disability benefits you receive should be found in Box 5 of Form SSA-1099 (Social Security Benefit Statement). That amount must be entered on line 6a of IRS Form 1040-SR (U.S. Tax Return for Seniors) or IRS Form 1040 (U.S. Individual Income Tax Return).
The taxable benefits that you include with your income and use to calculate your income tax will depend on your total benefits and income for the tax year. You must enter the taxable part of your SSD benefits on line 6b of IRS Form 1040-SR or IRS Form 1040.
What Are the Penalties for Unreported Income?
Do not try to work “under the table” for cash while you are receiving SSD benefits. If the Social Security Administration learns that you are earning unreported income while receiving SSD benefits, you may have to pay back any benefits you received during the months you worked.
You will also be subject to fines, and you could lose your right to receive disability benefits in the future. Earning income and not reporting it has other potential consequences for disability benefit recipients. You could be prosecuted for fraud or theft of public funds.
In June of this year (2022), Kenneth Pontz, 58, was charged in a federal court in Springfield, Massachusetts with the theft of public funds. According to the indictment, over a period of six years, Mr. Pontz stole more than $63,000 in SSD payments.
A conviction for the theft of public funds may be penalized with up to ten years in prison, three years of supervised release, and a fine of $250,000 or twice the gain or loss realized by the defendant, whichever is greater.
What Else Should You Know About SSD Benefits?
Social Security Disability benefits constitute a critical safety net program for workers who are now disabled, and the program improves the quality of everyone’s life in the United States. More workers receive SSD benefits today than ever before, although qualifying for benefits is difficult.
In Southern California, to receive SSD benefit payments, the first step is contacting – immediately – a San Diego disability attorney who routinely handles SSD claims and who knows what it takes to prevail on your behalf.
Your lawyer will review – or help you complete – your request for SSD benefits and will make sure that it is thorough and accurate. If your application for SSD benefits is denied, a San Diego disability lawyer will handle your appeal of that decision and fight for the benefits you need.
A Southern California disability attorney will answer all of your questions about SSD benefits, address all of your concerns, and help you avoid any legal or tax problems related to your SSD benefits.