Recipients of Social Security disability benefits may be taxed since such benefits follow the same tax guidelines that apply to Social Security retirement, family and survivor benefits.
What determines whether you pay taxes? It all hinges on the term “provisional income.” To determine provisional income, the IRS combines a person’s adjusted gross income, tax-exempt interest income and half of his or her Social Security benefits for a year.
IRS may tax you
Here are three scenarios as to whether an SSD recipient pays taxes on these benefits:
- Does not have to pay: A person is exempt from paying taxes if the sum of their provisional income is less than $25,000 for an individual taxpayer or $32,000 for a married couple who file jointly.
- The 50% scenario: Up to 50% of the SSD benefits are subject to taxes if the provisional income for an individual ranges from $25,000 to $34,000 or that number ranges from $32,000 to $42,000 for married couples who file jointly.
- The 50% to 85% scenario: The IRS will tax a person on 50% to 85% of the SSD benefits if, as an individual, you earn more than $34,000 annually or more than $44,000 if filing jointly.
Here is an example. Say you receive monthly SSD benefits of $1,277 – the amount that the average disabled worker received in 2020. In addition, you earned $16,000 while working a part-time job and received $3,000 from dividends and investments. This gives you a provisional income of $26,662. These numbers place you in the group that owes taxes on 50% of the SSD benefits.
The Social Security Administration reports that about one-third of disabled workers pay taxes on their benefits, usually due to household income that includes a spouse’s earnings.
Most recipients have no tax worries
Generally, people who receive SSD benefits need not worry about taxes, because their income is too low. It is crucial to remember that the intent of SSD benefits is to provide financial support to people who cannot work due to severe medical ailments.
In addition, the Social Security Administration (SSA) limits the amount a person may earn while working and stay eligible for SSD benefits. For 2022, non-blind person may earn up to $1,350 per month and continue to receive SSD benefits. That amount is $2,260 for a blind person.
Benefits serve as financial lifeline
Your SSD benefits provide a financial lifeline for you and your family. Naturally, you have concerns as to whether the IRS will take a portion of that during any tax season. Understand the rules that apply. Doing so may provide you with peace of mind.