Boston SSDI and Taxes: What You Need to Know

Most Americans see their pay stubs every two weeks and take note of the chunk Uncle Sam takes out for Social Security each time. Because they have paid in to Social Security with their taxes, the thinking goes, they won’t be taxed yet again if they need to draw benefits from any of the Social Security systems. taxes

Not so.

Well, usually not so. There are some situations in which Social Security benefits are taxable as income. One of the situations in which this is true is with Social Security Disability Insurance (SSDI). These benefits may sometimes be taxable, while SSI (Supplemental Security Income) benefits are never taxable. 

SSDI benefits, you may now, are paid to those individuals who are disabled to the point they are unable to work. These individuals will have worked for a certain minimum period of time and will have paid into the system. Their benefits will be based on how much they have paid into the system, and are doled out regardless of their income or resources.

SSI benefits, on the other hand, are issued to persons who cannot work and who also have limited resources and income.

SSDI benefits can in some cases create a federal tax liability if you have other income. It will depend on how much you receive in other income. To figure out what your tax liability might be, our Boston SSDI lawyers know you start by halving your disability benefit. Then to that figure, you will add other income. This will include:

  • Salaries and wages;
  • Investment income;
  • Farm or business profits;
  • Other miscellaneous sources of income.

If that figure is under $25,000 for an individual or under $32,000 for a couple (as of 2016), there should be no income taxes owed. However, if what you receive is greater than that, you may have to include some of your benefits as “taxable income.”

Single filers who earn somewhere between $25,000 and $34,000 can have a maximum of 50 percent of benefits can be taxed by the federal government. If the amount works out to anything more than $34,000, the most the Internal Revenue Service can tax is 85 percent of your SSDI benefits. For joint filers, the limits are $32,000 and $44,000.

Most people who receive SSDI benefits receive less than those amounts, so they probably aren’t going to need to pay taxes. However, in situations where an SSDI recipient is married and the couple files jointly, it’s not uncommon for the other spouse’s income to push those limits over the threshold.

It’s important to consider the tax implications of such benefits sooner than later. Consider speaking with an accountant to determine the best way to file and minimize your losses.

SSDI benefits, on the other hand, will not be taxable. That’s because benefits are based on financial need. There are very tight limits on how much beneficiaries can receive from other sources and still obtain benefits. Benefits can be reduced if you begin taking in other sources of income beyond those limits. For that reason, an SSDI beneficiary’s income will not exceed the threshold to qualify them for susceptibility to income taxes.

If you or a loved one is seeking Social Security Disability Insurance in Boston, call for a free and confidential appointment at (617) 777-7777.

Additional Resources:

Is Social Security Disability Taxable? June 5, 2016, By Dan Caplinger, The Motley Fool

More Blog Entries:

Crespo v. Colvin: SSDI Appeals, June 10, 2016, Boston SSDI Lawyer Blog

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