If you reside in the Lone Star State, the short answer is that only Social Security Disability Insurance (SSDI) benefits may be subject to taxation, and only by the federal government. Whether your disability benefits are actually taxable, however, will mainly depend on the amount of your benefits and your other income.
Every case is different. It is important to work with a law firm like Kraft & Associates, Attorneys at Law, P.C., that will pay close attention to your case, give you compassionate legal support, and work hard to seek the best possible outcome for you and your family in your disability benefits case.
Are All Types of Social Security Disability Benefits Taxable if You Live in Texas?
The two main types of federal disability benefits that people qualify for in Texas are Social Security Disability Insurance (SSDI) benefits and Supplemental Security Income (SSI) benefits.
SSDI benefits are available to those who are disabled and cannot work due to their disability and have worked and paid into the Social Security system. SSI benefits may be granted regardless of whether a person has worked. Eligibility, instead, depends on the person’s income and assets.
If you receive SSDI benefits, a portion of those benefits may be subject to federal taxation. However, SSI benefits are not subject to taxation by the federal government. Because Texas is among a group of states that do not impose state income taxes, SSDI benefits are not subject to state taxation.
In most cases, individuals who qualify for SSDI benefits will not pay federal taxes on them due to their lack of other income. However, if you are married, your spouse works, and you file jointly, it may put you in a category where your disability benefits will be taxed.
How Do You Know if Your Social Security Disability Benefits Are Taxable?
You can find the amount you receive in SSDI benefits each year on Form SSA-1099, or Social Security Benefit Statement. You use this figure when you fill out your federal income tax return. To determine if your benefits are taxable, you add:
- One-half of your benefits
- All of your other taxable income
If the amount is greater than the base amount for your filing status, a portion of your disability benefits will be included in the taxable income you must report on your tax return. Those base amounts are:
- $0 if you are married, lived with your spouse at some point during the prior year, and you are filing a separate tax return
- $25,000 if you are single, head of household, or a qualifying surviving spouse, or if you are married but you have lived apart from your spouse for the year and you are filing a separate, rather than joint, tax return
- $32,000 if you are married and filing a joint tax return with your spouse
Even if your disability benefits are subject to taxation, it does not necessarily mean that your income will, in the end, result in you paying an income tax.
What Is the Maximum Amount of Your SSDI Benefits That Can Be Taxed?
The Internal Revenue Service (IRS), which carries out federal tax laws, can never subject the entire amount that you receive in Social Security benefits to taxation. The portion of your SSDI benefits that can be taxed will depend on your filing status and your monthly or annual income.
For instance, if you are an individual, the maximum portion of your disability benefits that can taxed will be:
- 0% if your monthly income is $0 to $2,083 ($0 to $25,000 annually)
- 50% if your monthly income is between $2,084 and $2,833 ($25,000 to $34,000 annually)
- 85% if your monthly income is $2,834 or higher (or more than $34,000 annually)
On other hand, if you are married, the maximum taxable portions are:
- 0% if your monthly income is $0 to $2,666 ($0 to $32,000 annually)
- 50% if your monthly income is between $2,667 and $3,666 ($32,000 to $44,000 annually)
- 85% if your monthly income is $3,667 or higher (or more than $44,000 annually)
Just because the IRS can, in some situations, tax up to 85 percent of your disability benefits, it does not mean it will necessarily occur. Also, the portion taxable is not the same as your tax rate. You are still taxed at your personal income tax rate.
Do You Have to Pay Federal Taxes When You Receive Lump-Sum Back Payments?
For many reasons, the Social Security Administration has a backlog of cases. As a result, by the time the SSA finally grants your claim for SSDI benefits, it may be several months after the onset of your disability. You could be entitled to receive a significant amount in payments that you should have received during that time.
The SSA typically makes backpay payments in lump-sum amounts. As a result, your income could spike for that year and raise the possibility that you will need to make a federal income tax payment. However, to avoid this risk, you may be able to apply a portion of the payment to the prior year, or years.
Get Legal Help from Our Experienced Social Security Disability Lawyers in Dallas
When you work with the experienced and dedicated Social Security disability attorneys at Kraft & Associates, Attorneys at Law, P.C., we will ensure that you understand your right to receive SSDI and SSI benefits, fight hard to protect that right, and benefits you deserve, and even after your claim is approved.
Our attorneys can also work with you on other Social Security disability tax issues, such as whether your property tax, employee benefits, pension, or retirement may affect your claims.
