Wondering About Taxes on your Disability Benefits?

With April 15 looming on the horizon, many people ask questions about taxes on disability benefits.

Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.

No one pays federal income tax on more than 85%  of their Social Security benefits.

Whether filing your taxes individually or with your spouse, the following income limits result in about half of your benefits being taxed:

  • Over $25,000 and less than $34,000 for an individual
  • A combined income over $32,000 if married and filing jointly

For higher income brackets, 85% of your benefits could be taxed, including:

  • Over $34,000 if single
  • Over $44,000 if married

Lump sum payments for death benefits and back payments can be subject to taxes for that year, which could move you into a higher income bracket and increase your amount of taxes to be paid. You may be able to apply some back payments to previous years if that was the time period for which the benefits apply. This may lower your tax payments for the current year.

If your source of income is over the limits mentioned above, it will be taxed at your marginal tax rate.