For most people, the answer is no. But there are some scenarios where you may have to pay taxes on Social Security disability benefits. It may also behoove you to consult with a financial advisor as you navigate the complicated terrain of taxes on Social Security disability benefits. Your disability must have lasted at least 12 months or be expected to last 12 months. SSI benefits are paid to people who are aged, blind or disabled and have little to no income. These benefits are designed to help meet basic needs for living expenses.
Social Security retirement benefits are paid out based on your past earnings, regardless of disability status. Virginia, like most states, does not tax SSDI payments. SSDI is considered a form of early retirement, and Social Security retirement benefits are also provided free of tax liability.
If you or a loved on has been denied Social Security Disability Benefits you need to speak with an experienced SSD attorney as soon as possible. Please contact us online or call our Virginia Beach office directly at Social Security disability benefits SSDI can be subject to tax, but most disability recipients don't end up paying taxes on them because they don't have much other income.
About a third of Social Security disability recipients, however, do pay some taxes, because of their spouse's income or other household income. Here's how it works. How big a portion of your SSDI benefits is subject to tax depends on how high your income is. Here's a chart with monthly income amounts that tells you whether your SSDI benefits will be taxed and the maximum portion of SSDI that could be taxed.
Keep in mind that if your disability benefits are subject to taxation, they will be taxed at your marginal income tax rate. The tax rate is the same used for your other income. Large lump-sum payments of back payments of SSDI payments of benefits for the months you were disabled but not yet approved for benefits can bump your income up for the year in which you receive them, which can cause you to pay a bigger chunk of your backpay in taxes than you should have to.
To avoid losing part of your backpay this way, you are allowed to apply the SSDI benefits owed from a prior year to prior tax returns, lowering your income for the year you receive the lump sum. For example, if you were entitled to disability benefits for 22 months before you received your back pay, you could amend your tax returns for two prior years to claim some of the income in those years instead of the current year.
You should ask a lawyer or CPA for help on this. For more information, read our article on how Social Security disability backpay is taxed.
Most states do not tax Social Security disability benefits. The following states, however, do tax benefits in some situations.
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