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My SSDI disability benefits are taxed?

In Rhode Island, Massachusetts and Connecticut, most people who receive Social Security Disability Insurance (SSDI) benefits wind up not having to pay taxes on their benefits. However, if you have other income, you may have to pay taxes on a portion of your SSDI benefits. The information below is only a brief overview of the taxability of SSDI. For more information specific to your benefits, you’ll want to contact a disability attorney or your tax preparer.

Do you have to pay taxes on your SSDI?

About one-third of SSDI recipients have to pay taxes on their benefits. Whether or not your benefits are taxable depends on your combined income. If you file taxes as an unmarried individual and your monthly income is $2,083 or less, you don’t have to pay taxes on your SSDI benefits. If you’re married, the income limit is $2,066/month.

If you make more than the above amounts, you’ll be taxed as follows. 

  • Bracket one: If your monthly income is $2,084 to $2,833 (or $2,667 to $3,666, if you’re married), 50 percent of your SSDI benefits are taxable.
  • Bracket two: If your income exceeds the maximum amounts in bracket one, then 85 percent of your SSDI benefits are taxable.

 

The tax rate at which your SSDI benefits will be taxed depends up your income, i.e., they will be taxed at your marginal income tax rate.

How the IRS Defines Your Income for SSDI Taxation Purposes

The IRS bases your taxes on what’s referred to as your “combined income.” Your combined income is calculated by adding the following three figures: 

  • Your adjusted gross income
  • Your non-taxable interest
  • One-half of your SSDI benefits

 

If your SSDI benefits are taxable, you have the option of asking the Social Security Administration to withhold taxes for you so that you won’t have a tax bill at the end of the year. To select this option, you can fill out form W-4V from the Internal Revenue Service and then send it the SSA in the mail or hand-deliver it to your nearest SSA office.

What about state taxation on SSDI benefits?

Each state decides whether or not to place a tax on SSDI benefits. Most don’t. States handle SSDI benefit taxation in one of four ways. 

  • #1: SSDI benefits are taxed according to your federally adjusted gross income (Connecticut, Colorado, Iowa and Kansas)
  • #2: SSDI benefits are taxed (Only Utah and Montana fully tax the benefits)
  • #3: SSDI benefits are taxed at the same rate as your federal taxes (Minnesota, Nebraska, North Dakota, Rhode Island, Vermont and West Virginia)
  • #4: SSDI benefits are completely tax-exempt (If you live in any of the states not mentioned above, your SSDI benefits are completely tax-exempt.)

Free Consult with a Social Security Disability Attorney

If you are on SSDI, it might be a good idea to have a disability attorney review your benefits. Your attorney can ensure you get the full amount of benefits to which you’re entitled, advise you of your rights and tax responsibilities, and help you deal with any legal hiccups.

For an attorney well-versed in disability benefits in Rhode Island, Massachusetts and Connecticut, we invite you to call our team at Rob Levine and Associates for a consultation. Contact us today for a free case evaluation at 866-LAW-SSDI (866-529-7734).