If you’re receiving Social Security Disability Insurance (SSDI), you’ve worked hard, paid into the system, and now need that support due to a serious medical condition. These monthly benefits can be a lifeline, helping you cover everyday expenses when you’re no longer able to work.
The IRS has specific rules that determine whether your SSDI benefits will be taxed. Your filing status and your “combined income” will play a big role in whether you owe taxes on your benefits.
For many people, SSDI is not taxable at all. If your only income is from disability benefits, you likely won’t owe federal taxes. But if you receive additional income, some of your SSDI could be considered taxable.
At Hunter | Everage, our experienced Richmond SSDI lawyers know how confusing SSDI rules can be, especially when it comes to taxes. We help individuals and families navigate the Social Security system and understand how their benefits may affect their finances.
When SSDI Benefits May Be Subject to Federal Taxes
So, is SSDI taxable? If SSDI is your only source of income, chances are you won’t owe any federal taxes. However, if you earn other income, such as wages from a part-time job, investment earnings, or your spouse’s income if you file jointly, the IRS may tax a portion of your SSDI benefits.
The IRS looks at something called “combined income” to determine whether your SSDI is taxable. This includes:
- Your adjusted gross income (AGI)
- Any nontaxable interest (like municipal bond income)
- Half of your SSDI benefits
If that number is above a certain amount, you may have to pay federal taxes on up to 50% or even 85% of your SSDI benefits.
How to Calculate Whether Your SSDI Is Taxable
The IRS specifies that SSDI benefits may become taxable depending on your income and filing status. If one-half of your SSDI benefits plus all other sources of income exceed a certain threshold, a portion of your benefits may be subject to federal income tax.
These income thresholds vary by filing status:
- $25,000 for individuals filing as Single, Head of Household, Qualifying Surviving Spouse, or Married Filing Separately (if you did not live with your spouse during the year);
- $32,000 for those Married Filing Jointly;
- and $0 for those Married Filing Separately who lived with their spouse at any point during the year.
For example, if you are married and file a joint return, you can have up to $32,000 in combined income before you must start paying taxes on those benefits. If your total income exceeds the threshold for your filing status, different inclusion rates apply.
As a Single filer, if your income falls between $25,000 and $34,000, you may need to include up to 50% of your SSDI benefits in your taxable income. If your income exceeds $34,000, up to 85% of your benefits may be taxable.
For married couples filing jointly, up to 50% of your benefits may be taxable if your combined income is between $32,000 and $44,000. If your combined income surpasses $44,000, up to 85% of your SSDI benefits may be included in your taxable income.
State Tax Rules for SSDI
If you live in Richmond, your SSDI benefits are not taxed by the state. That means you won’t have to worry about paying Virginia state income tax on the money you receive from SSDI.
However, it’s important to remember that while the state won’t tax your SSDI, the federal government might, depending on your total income and filing status. So even though you’re in the clear with Virginia, you may still need to factor your disability benefits into your federal tax return.
If you’re unsure how your benefits impact your taxes, it’s a good idea to talk with a Social Security Disability lawyer. At Hunter | Everage, we help people across Richmond understand the rules and protect their benefits.
How to Minimize Tax Liability on SSDI Benefits
Try to keep your total income under the IRS thresholds. That means if you’re working part-time or receiving other income, it may be beneficial to spread that income out over time. Spreading it out can prevent you from jumping into a higher tax bracket that would make more of your SSDI taxable.
Second, consider using tax-advantaged accounts, such as a Health Savings Account (HSA), if you’re eligible. Contributions to an HSA can reduce your taxable income, and withdrawals for medical expenses are tax-free. If you’re paying a significant amount out of pocket for healthcare, this can be a helpful resource.
Third, keep track of any medical expenses. If they’re high enough, they may be deductible when you file your taxes. Don’t forget about tax credits you might qualify for, like the Earned Income Tax Credit (EITC), which some SSDI recipients can claim if they’re working part-time.
Tax laws can be complex and subject to change over time. A disability attorney can help you understand how your SSDI benefits fit into your bigger financial picture and offer guidance specific to your situation.
Contact an Experienced Richmond Social Security Disability Lawyer
Have you been wondering, “Is SSDI taxable income?” If you or your spouse earns additional income, part of your SSDI may be taxed at the federal level. We’ll walk you through how it works, help you understand the IRS rules, and connect you with professionals if you need to file a return.
We also help clients manage their ongoing benefits, answer questions about reporting changes in income, and explain how SSDI and taxes affect each other. If you’re wondering if SSDI is taxable income for you, we can review your full situation and help you plan the smartest next steps.
Contact our Richmond office at 704-377-9157 to request a consultation with a Social Security Disability lawyer at Hunter | Everage who understands what you’re going through and knows how to help.