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Taxes and your SSD benefits

It's tax season once again and time to figure out what you owe Uncle Sam. One of the first steps in figuring out your tax liability is to calculate the portion of your income that is actually taxable. Some taxpayers make the mistake of assuming that their federal benefits, such as Social Security Disability (SSD), are not taxable. And this may be true at the state level - some states do not tax federal benefits such as SSD. However, SSD is definitely subject to federal income tax if you meet the criteria

Here's a brief summary:

  • If you file an individual return, and your income is more than $25,000, your SSD income is taxable.
  • If you file a joint return and your combined income is greater than $32,000, your SSD income is taxable.
  • If you are married but file a separate return, your benefits will probably be taxable.

Of course, these are very rough guidelines, and taxpayers should consult a tax professional to determine how their specific circumstances will affect their taxes. Other deductions or credits may offset the tax liability to some extent.

Approximately one-third of the people receiving benefits from the Social Security Administration pay taxes on those benefits. The others do not have enough income to meet the threshold for paying taxes.

A common question among people who have received their retroactive benefits as a lump sum payment is whether that payment is subject to federal income taxes. The answer is "maybe," depending on other financial considerations. However, the lump sum payment can be spread out over several years to reduce taxable income in any one year. Moreover, only a maximum of 50% of SSD benefits are taxable.

There are other tax credits and deductions available to people with disabilities. For example, if you receive disability insurance benefits from a former employer, you may be eligible for a credit if you do not exceed the income threshold requirements. If you are blind, you can also be eligible for a higher standard deduction. Again, a tax professional can advise you about your eligibility for this and other tax benefits.

Obtaining SSD benefits and dealing with taxes can be challenging. At Binder & Binder®, The National Social Security Disability Advocates, we help the disabled secure the benefits they need and deserve.

Source: Social Security Administration, Benefits Planner: Income Taxes And Your Social Security Benefits, Apr. 4, 2012.

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