Are Social Security Disability Benefits Taxable?
When you are unable to work due to temporary or permanent disabilities, social security disability benefits (SSDI) can help to make up for income you otherwise would have lost. As a form of insurance, these are federal benefits that are administered by the state and paid for by taxes you paid on your job. You are required to claim these earnings on your yearly tax returns and in some cases, they may be taxable.
In addition to owing taxes on any benefits you receive, there are also situations in which your SSDI benefits could be garnished due to past unpaid taxes and unfiled returns. To assist you in meeting program guidelines and to ensure you are conforming to disability benefits tax requirements, our experienced Philadelphia social security benefit attorneys at Krasno, Krasno & Onwudinjo are here to help.
Disability Benefits Application Process
If you suffer a disability that is expected to last at least a year or one that will eventually result in your death, you may be entitled to social security disability benefits administered through the Social Security Administration (SSA). In order to qualify, you must meet past work requirements based on your recent employment and your overall work history. You must also be suffering an injury, illness, or other chronic condition that is acknowledged as an impairment by the SSA.
Your application is processed first through your local SSA office to ensure that you meet the work requirements. Once this screening is completed, it is then sent to state disability determination services (DDS), which reviews your medical records, your health history, prescription medications you are taking, and any other evidence you present in regards to your condition. The length of time this takes varies based on whether your condition is one commonly acknowledged by the SSA, and whether all the necessary paperwork and documentation has been submitted. It is not uncommon to receive a denial of your disability benefits. While you have the right to appeal this decision, it can make the amount of time you are required to wait even longer.
The good news is that once your benefits are approved, they may be retroactive to the date at which you first filed. The amount you make will depend on your previous earnings. You can get an estimate of this amount through your SSA statement or by using an SSDI benefit calculator online. You may also be entitled to work during the time you receive SSDI benefits, provided you fall within the program guidelines.
While disability benefits generally are not subject to tax, they could be if you are working or receiving other benefits or if you are married and your spouse makes a certain amount of money. You can find additional information that may be relevant to you and your spouse in our post How Can Marriage Affect My Eligibility for Social Security Benefits?
SSDI Benefits and Your Tax Return
According to information from the Internal Revenue Service (IRS), supplemental security income (SSI), which is need-based, is not taxable, while Social Security Disability Insurance (SSDI) must be reported on your yearly tax returns. You can expect to receive a yearly Form SSA-1099, Social Security Benefit Statement, which will list the total benefits you received for reporting on your annual 1040 or 1040A tax form.
To determine whether any of this amount is taxable, you will need to compare the base amount allowed with 50% of your benefits and any other combined earnings or benefits you receive. Your base amount is determined by your filing status:
- If you are single the head of a household, or a qualifying widow, the base amount is $25,000;
- If you are married and filing jointly, your base amount is $32,000;
- If you are married but filing separately and have lived apart from your spouse throughout the tax year, your base amount is again $25,000;
- If you are married and filing separately but have lived with your spouse for at least part of the tax year, your base amount is $0.
It is important to remember that if you are married and filing jointly, you must combine any income or benefits received by you or your spouse in determining your base amount. If you do owe taxes, there are a number of ways the IRS can settle your debt. In addition to paying the amount when you file your taxes, you may also be able to set up an IRS online payment agreement or request a referral so that you can pay your taxes at a later date. In either case, it is important to address this situation promptly. Failing to pay taxes owed or not filing a return as a way of avoiding a tax debt could subject you to heavy fines, high interest, and further collection actions.
Levies On Social Security Disability Amount
If you do not pay taxes on your SSDI benefits or if you have past due taxes or unfiled returns from previous years, you could be subject to IRS liens and levies. A lien attaches to your property and assets, letting other creditors know you have an outstanding debt with the IRS. Before you can sell or trade this property, the debt would have to be paid. A levy is an actual seizure of property and can involve the IRS taking possession of bank accounts or other property.
As assets you possess, social security disability amounts can be subject to levies, where a portion of your benefits are withheld and used by the IRS to satisfy your past due to tax debt. Before this would happen, you would receive a notice of the debt and the actions the IRS intends to take, via notice form CP 91 or CP 298, Final Notice Before Levy on Social Security Benefits.
Anytime you receive an IRS notice; it is important to take steps immediately to address the situation. You generally have the right to file an appeal if you disagree with any steps the IRS has taken or with any portion of your tax bill. You also may be able to negotiate an offer in compromise, which allows you to settle your tax debt for less than what is actually owed. Whether you currently owe tax or are dealing with a past issue, meeting the situation head-on is the best way to ensure that your disability benefits are protected.
Contact Our Social Security Disability Attorney Today
Dealing with both the Social Security Administration and the Internal Revenue Service is a daunting prospect for most people. Both government agencies have complicated guidelines that, if not followed, can have significant impacts on your financial security.
Whether you are applying for SSDI or have concerns about taxes owed on any benefits you receive, our experienced Philadelphia social security disability attorney is here to help. At Krasno, Krasno & Onwudinjo, we have been serving residents of Pennsylvania for three generations. We can help ensure that your rights and interests are protected while assisting you in getting the benefits to which you are entitled.
Contact our office today at 800-952-9640 and request a consultation to discuss your case. With 12 offices to serve you throughout Pennsylvania, Krasno, Krasno & Onwudinjo provides the trusted legal guidance you need.