Taxes and Social Security Disability Benefits 

Social Security benefits, such as Social Security Disability Insurance benefits (SSDI), are not taxable. This is typically true for those who have income on top of their disability benefits as well as those who are not earning additional income.  

If you are not drawing SSDI, the basic rules apply:

“If your total income is more than $25,000 for an individual or $32,000 for a married couple filing jointly, you must pay income taxes on your Social Security benefits.” 

If you are earning less than this, your benefits are not taxed, and that holds true for those with SSDI or those who are receiving spousal or survivor benefits. 

What if you go beyond those limits? Let’s consider that… 

When You Pass Income Limits 

The amount you will be taxed on your Social Security benefits varies by income level: 

• Earn between $25,000 to $34,000 as an individual and up to 50% of the amount you receive in benefits is taxed 
• Earn more than $34,000 as an individual or over $44,000 as a couple and up to 85% of your benefits may be taxed 

What would that look like? If you are an individual with $50k in annual earnings, but you also get $1,500 from your Social Security benefits. You fall into the 85% tax bracket. 

The tax range from 10% to 24% depending on the income bracket. 

Are Back Payments Taxable? 

Back payments are typically related to SSDI, and go to the individual who filed for coverage based on several factors. When they filed, when they became disabled, and where they are in the five-month waiting period are all taken into consideration in calculating their back payment amounts. They are lump sum payments and can force a larger than anticipated payment in a single tax year. 
 

If they are received over two tax years, it is a better tax scenario as it will generate a much lower tax bill. Also, the IRS tries not to penalize those who receive SSDI when they get past due sums in a single year. Rather, the IRS code allows those past due amounts to be apportioned to the previous tax year, and they don’t require amended tax returns to be filed. 

Marginal Tax Rate 

The confusing manner in which Social Security benefits are taxed forces many to seek expert help. This is particularly true when it comes to the application of the marginal tax rate, which is a rate based on how much tax you pay on additional dollars of income.  

As an example, you may be in the basic 12% tax rate, but earn income that faces the much heftier 24% income rate, or higher. The higher-taxed income might be from earnings or from an IRA withdrawal.