When the taxman cometh. . . is he coming for your SSD benefits?

The answer, most likely, is no. SSD recipients must report the net benefit received (reported in Box 5 of Form SSA-1099) on their federal income tax return, but only about one-third of them will have to pay federal taxes on those benefits; the tax liability is the result of having substantial income in addition to the SSD benefits. Learn more about federal taxes and SSD benefits.

Calculating Income, Federal Taxes, and SSD Benefits

Whether you’ll owe federal taxes on your SSD benefits depends on two factors – your combined income and your filing status. For income tax purposes, combined income is one-half of your annual SSD benefits plus all other income received for the taxable year. If your combined income exceeds the base amount for your particular filing status, you’ll have to pay income taxes. The IRS has established base amounts, based on filing status, as follows:

  • $25,000 if you are single, head of household, qualified widow(er), or married and filing separately (and you have not lived with your spouse for more than 1 year);
  • $32,000 if you are married and filing jointly, and;
  • $0 if you are married, filing separately, and lived with your spouse for any length of time during the tax year.

If your combined income exceeds the base amount, taxes are calculated as follows:

  • If you are single, head of household or a qualified widow(er), you will be taxed on the lesser of 50% of your benefit income or the amount of your modified adjusted gross income in excess of $25,000. The taxable portion included increases to 85% if your combined income exceeds $34,000.
  • If you are married and filing jointly, you will be taxed on the lesser of 50% of your benefit income or the portion of your modified adjusted gross income in excess of $34,000. The taxable portion included increases to 85% if your combined income exceeds $44,000.

If your SSD benefits are your sole source of income, especially if you are single or a qualifying widow or widower, it’s unlikely you’ll have any income tax liability. Regardless of your federal income tax liability, SSD benefits are fully exempt under Illinois state law, meaning you won’t have to pay state income tax on them, regardless of whether you are taxed on them at the federal level.

Learn more about SSD Benefits in these blog posts:

What You Should Know About Continuing Disability Reviews

What Is A Social Security Disability Award Letter

Social Security Disability Back Pay and How It Works

If you have been denied benefits or are new to applying for SSD benefits, contact our office for a complimentary case evaluation by phone or online form.