TAXING SSDI & SSI BENEFITS
Taxing SSDI and SSI benefits doesn’t seem right. Especially when you consider that SSD benefits are for those who cannot work and you only earned the right to get the benefits by paying taxes. However, they say that there are only two things that you can count on in this life: death and taxes.
Death is a fact we cannot escape, no matter what we do, who we know, or what we know. Taxes, on the other hand, are amenable to knowledge. What this means is that the more you know about your SSDI and SSI benefits, the more you can plan for any taxation issues.
THREE THINGS YOU NEED TO KNOW TO DETERMINE WHETHER YOUR BENEFITS ARE TAXABLE
The question as to whether your Social Security benefits are taxable depends on three things: the type of benefit you are receiving, your filing status and your combined income. First, let’s look at the type of benefit that you are getting from the SSA.
1. WHAT TYPE OF BENEFITS ARE YOU GETTING?
ARE YOU ON SSD BENEFITS OR SSI BENEFITS?
As you probably know, there are two types of Social Security benefits for people with disabilities. The first is Social Security Disability Insurance (SSDI). The second type of benefit is Supplemental Security Income (SSI).
In order to figure out what tax you might owe the IRS, you need to know exactly what type of disability benefits you are being paid by the SSA. You can receive a monthly payment of SSDI benefits or SSI benefits. And, just to make it more difficult, you could also be getting a combination of the two benefits in your monthly SSA payment.
WHAT ARE SSDI PAYMENTS?
Social Security Disability Income payments or SSDI are benefits based upon your earnings during your working life. If you have worked full time for ten years and paid taxes into the Social Security system, then chances are good that you qualify for SSDI benefits.
The amount of your SSDI benefit is not tied to the amount of money you have in the bank, money you inherit, or any assets that you own. Instead, to get SSDI, you must have a severe medical condition that will last longer than one year and you must have paid into the Social Security system. The amount of the monthly benefit is high if you have earned a lot of money. It is low if you haven’t.
If the SSA finds that you cannot work due to your severe medication condition, then after a five month waiting period, you can be paid SSDI payments.
When you file for SSDI benefits, you become eligible for past due benefits one year prior to the date of your application. However, you must not have been working and you must be able to prove you were disabled during that time.
SSDI benefits can be taxable, because they come under the same set of tax rules as Social Security retirement benefits and family and survivor benefits.
WHAT ARE SSI PAYMENTS?
SSI benefits for people with disabilities and you do not have to have been a worker in order to get them. People who have never worked, those who are blind and older people with low incomes and limited financial assets, can receive them. Again, to receive SSI benefits under the disability program, you must be found disabled and you must also have below poverty level income and assets.
Social Security administers the SSI program, but money from the US Treasury, not your Social Security taxes, pays for it. Federal SSI payments in 2023 max out at $914 a month for an individual and $1,371 for a married couple when both spouses are getting SSI benefits. Those SSI benefits are not subject to income tax.
WHAT ARE CONCURRENT BENEFIT PAYMENTS?
If you are getting both SSDI and SSI benefits every month, then you are receiving “concurrent” or “dual” benefits.” For example, you can receive $500 a month in SSDI benefits and, in order to get you to the $914 SSI level, SSI will kick in and you will get $414 of SSI. However, you must still not exceed the SSI income and asset limits in order to get SSI benefits.
If you are getting concurrent benefits from the SSDI and the SSI programs, then if you income changes you may lose benefits. For example, marriage could cause you to lose your SSI benefits because you income may change. Your spouses income will be attributed to you and it might cause you to exceed the earnings limits for SSI benefits.
However, if you marry and you are getting SSDI benefits, then your SSDI benefits will not change. SSDI benefits are based on your own earnings. There are no income or asset rules for SSDI benefits.
2. WHAT IS YOUR FILING STATUS?
The IRS recognizes several filing statuses for individual taxpayers, including single, married filing jointly, married filing separately, head of household, and qualifying widow or widower with a dependent child. Each filing status has its own tax brackets, deductions, and credits.
ARE YOU FILING TAXES AS AN INDIVIDUAL?
If you are filing taxes as an individual, this usually means you are not married and that your taxes are based on only your income sources.
An individual taxpayer is a person who is required by law to pay taxes on their income, either earned or received through investments or other means. Individual taxpayers can include employees, self-employed individuals, independent contractors, and business owners who operate as sole proprietors. The specific tax obligations and rules for individual taxpayers depends on their income level, residency status, and other factors.
Individual taxpayers with higher incomes generally pay higher taxes than those with lower incomes. The IRS uses a progressive tax system, which means that the tax rate increases as income increases.
In addition to federal income tax, individual taxpayers may also be subject to state and local income taxes. They may also be subject to property taxes, sales taxes, and excise taxes. The specific tax laws and rates vary by state.
ARE YOU FILING AS A MARRIED COUPLE?
For tax purposes, a married couple refers to two individuals who are legally married and recognized as such by the state or country in which they live. The IRS recognizes two filing statuses for married couples: married filing jointly and married filing separately.
MARRIED FILING JOINTLY
Married filing jointly is a filing status where a married couple files a single tax return together, combining their income, deductions, and credits. This filing status usually results in a lower tax liability than filing separately, because it allows for higher income thresholds and more tax deductions and credits.
MARRIED FILING SEPARATELY
Married filing separately is a filing status where a married couple files separate tax returns, each reporting their own income, deductions, and credits. This filing status may be financially beneficial in certain circumstances. For example, the couple can save tax money when one spouse has significant itemized deductions or when the couple wants to keep their finances separate.
IS THE LEGAL DEFINITION OF MARRIAGE SET IN STONE?
It is worth noting that the definition of a married couple can vary by state or country. You might think something like marriage would be easily defined and set in stone. But that is not true.
For example, in the 1967 the US Supreme Court struck down all state laws banning interracial marriage in the case Loving v. Virginia, 388 US 1 (1967). Anti-miscegenation laws had been in place from the colonial period until the U.S. Supreme Court decision. In the late 1600s, the law outlawed marriages between white colonizers and enslaved Africans in the British colonies of Maryland and Virginia. In later years, other states enacted similar laws to prohibit marriages between individuals of different races.
SAME SEX MARRIAGE
Similarly, in the recent past, gay and lesbian couples were legally married in some states and not others. As some states refused to recognize gay marriages from other states. However, on June 26, 2015, the Supreme Court overturned state bans on same sex marriage in Obergefell v. Hodges. This made same sex marriage legal in all 50 states.
Even though that is the current state of the law, US Supreme Court Justice Thomas, who is an African-American man married to a white woman, has stated his desire to overturn the right of gay and lesbian couples to marry. If he and other Justicies overturn the holding in Obergefell, then what is to stop states from making laws against the right of interracial couples to marry? His own marriage may be found to be illegal.
3. DO YOU HAVE OTHER INCOME THE IRS CAN TAX?
PAYING TAXES ON SSDI BENEFITS WHEN YOU HAVE OTHER INCOME
Even though there are no income or asset rules that limit the amount of your SSDI benefits, you may still have to pay taxes on SSDI benefits. The need to pay taxes will depend on whether or not you have other sources of income in addition to your SSDI benefits. For example, do you have other wages, investment income, or pension income? If so, then you may have to pay taxes on a portion of your SSD benefits.
To determine if your SSDI benefits are taxable, you need to add up all your income from all sources, including half of your SSDI benefits. This is called your “combined income” or “provisional income.”
Your “provisional income” is the sum of your adjusted gross income, tax exempt interest income and half of your Social Security benefits for a given year. Here’s how it works:
- If those three figures add up to less than $25,000 for an individual taxpayer or $32,000 for a married couple filing jointly, then you will not need to pay taxes on your SSDI benefits.
- If your provisional income is $25,000 to $34,000 for an individual or $32,000 to $44,000 for a couple filing jointly, then up to 50 percent of your SSDI benefits are subject to taxation.
- If your combined income is more than $34,000 for an individual or $44,000 for a couple, then you will be taxed on 50 percent to 85 percent of your benefits.
STATE TAXES ON SSDI BENEFITS
You can learn more by using the IRS online tax tool, the Interactive Tax Assistant and you should also seek the help of an accountant. An accountant can give you exact amount that you will need to pay in taxes and advise you as to your tax burden based on your filing status.
It is also important to note that some states tax SSDI benefits. For example, twelve states — Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont and West Virginia — tax some or all disability benefits. You should contact your state tax agency to learn about your tax situation.
Also, state tax questions are just one more reason to get advice from a tax accountant. You should also check with the tax department in the state that you live to see if you owe state taxes on your SSDI benefits.
MOST PEOPLE WHO RECEIVE SSD BENEFITS DON’T OWE TAXES
Most people who receive SSDI benefits, don’t pay taxes on their benefits because their overall income is too low to reach the tax threshold.
Disability benefits are intended to support people who are unable to work because of a severe medical condition. The SSA limits how much you can earn from work and still receive SSDI benefits. In 2023 the earnings cap is $1,470 gross per month for most people. However, if you can earn that much money per month, then chances are good that the SSA will not find you disabled.
According to the Social Security Administration, about a third of people receiving SSDI benefits pay taxes on them. When they do, it is usually because of other household income, such as the income from their working spouse.
DO YOU PAY TAXES ON PAST DUE BENEFITS?
Past due benefits are usually owed to you if you win benefits at the hearing level. The reason for this is that it can take up to two years from the time you file your application for benefits until you receive a hearing. Therefore, if two years went by while you were waiting to be awarded benefits, then you will probably be paid benefits for that time frame. You can learn more information about past due benefits here.
Because past due SSDI benefits can be paid in one lump sum, they can count toward combined income for the year in which you receive them. That could bump your income over the threshold and create a taxable event for you depending on your filing status. If this happens, the IRS offers alternative calculation methods that may reduce the tax impact. For that information, you will need to contact an accountant.
WHAT WE DO TO HELP YOU WIN SSD AND SSI BENEFITS
You do not need to apply for Social Security benefits by yourself. You can always call our law firm and we will help you win benefits. Cannon Disability can help you file your SSD and SSI application. Also, we can help you appeal every SSA denial. For example, our attorneys and staff can:
- Send you the paperwork you need to become our client
- Help you file your application for SSD and SSI benefits
- Inform the SSA that they should automatically pay your benefits under the Compassionate Allowance Rules
- Submit an appeal if you receive an initial denial from Disability Determination Services
- Help you schedule and confirm your Consultative Exam
- Request a Hearing with an Administrative Law Judge (ALJ)
- Prepare you to be a good witness at your SSA hearing
- Represent you at your hearing and question the expert witnesses
- Read more about vocational experts here
- Learn more about medical expert testimony here
- Request review of a decision at the Appeals Council
- Request review of an Appeals Council denial in Federal Court
If you file your application for benefits online at Social Security’s website, then you have 6 months to complete the application. Once you submit your application online, the SSA sends you an application summary in the mail. You must sign the summary and mail it back. If you don’t send it back, the SSA will not process your application. Sign it and send it back as soon as you can.
WE OFFER A FREE REVIEW OF YOUR BENEFITS
If you need help filing for SSDI and SSI benefits, then reach out to Cannon Disability Law. Taking the first step by calling us. All you need to do is contact our legal team.
Additionally, we offer a free review of your case. What that means is that you can call us and explain your situation. At that point, we will look at the merits of your case for free and let you know if you have a chance to win benefits. We do not charge you for our review of your case.
In the past 30 years, we have won over $100 million in SSDI and SSI benefits for our clients. We are experts at what we do and we will put our knowledge to work for you. Hire us to be your Social Security legal team.
We help clients win benefits in many states, including Nevada, Utah, Idaho, and California. Find out more about your benefits and how to apply in your state here:
- California SSDI and SSI benefits
- Colorado SSDI and SSI benefit information
- Idaho SSDI and SSI benefits
- Nevada SSDI and SSI benefits
- Utah SSDI and SSI benefits
No matter where you live, we want to be your legal team. Hire the best Social Security legal team with no money down. Also, there will be no attorney fee for you to pay unless we win your case. Contact us today. We will do our best to help you win SSDI and SSI benefits.
YOU ONLY PAY ATTORNEY FEES IF YOU WIN YOUR BENEFITS
The SSA has capped attorney fees in Social Security cases at 25% of your past due or back benefit or $7200, which ever amount is less. This is the most your attorney can charge when they win your case.
For example, if your attorney wins your SSDI case and your back benefit is $10,000, then the attorney fee will be 25% of the back benefit, or $2500. In such a case, you would not pay the $7200 cap. Instead, the attorney fee is 25% of the back benefit, which is less than the cap. This is what happens in most SSDI and SSI cases.
In another example, if you attorney wins your SSDI case and your back benefit is $100,000, the attorney fee is not $25,000, which is 25% of the back benefit. Instead, the attorney fee would be $7200. Because $7200 is the most your attorney can charge you after winning your case at the hearing level or below. That is true even if 25% is higher than the $7200 cap.
Additionally, your attorney can only charge an attorney fee if they win your case. In other words, if you do not win your benefits, then you do not pay an attorney fee. This means that your attorney has worked for up to two years on your case for free. So, if you don’t get benefits, your attorney doesn’t get paid. Obviously, your attorney has a good reason to win your case. Because we don’t get paid unless you win your benefits.
IS IT WORTH THE ATTORNEY FEE TO HIRE AN SSD LAWYER?
It isn’t easy to get Social Security benefits and the application process can be frustrating for most people. But, having an attorney throughout this appeal process can help. It is our belief that when you have a law firm with experience handling your Social Security case, then the SSA is more likely to follow their own procedures.
Additionally, when you have an attorney with legal experience, they will have access to Social Security’s decisions throughout the process. They can also submit medical evidence that may be missing from your case on your behalf.
There is evidence that hiring an attorney with the proper experience raises your chances of winning your SSDI and SSI benefits by 30%. It is also smart to hire an attorney to help you at your hearing. After all, you are the star witness at your hearing. If you hire an attorney with experience, they can prepare you to be a good witness at your hearing. Learn more about how to prepare for your hearing here.
LEARN MORE ABOUT OUR LAW FIRM
If you want to learn more about our lawyers and staff, then read our About Us page. For example, you can learn about Andria Summers, who has 21 years of experience working at Cannon Disability Law. She can also help you with your Medicare advantage plan. She has also won thousands of SSDI and SSI cases.
Additionally, Dianna Cannon has been helping her clients win benefits for over thirty years. Ms. Cannon also has years of Federal Court experience. Brett Bunkall also has many years of legal experience helping people obtain their SSI and SSD benefits.
Together, over the last 30 years, we have won over 20,000 SSDI and SSI cases. Additionally, we have won over $100 million in ongoing and back due benefits for our clients. Many of our clients, due to our work, do not have to attend a hearing. Instead, they win their case at an earlier level of appeal.
Make sure that you hire an attorney with the experience to win your benefits. Too much is at stake to attempt to win benefits on your own. We are Social Security law experts. You can trust us to help you win your benefits. We can also answer some questions about taxes on benefits as well. We want to make the difficult process of winning benefits as easy as possible for you. For help, contact us today.