How Social Security Disability Works
SSDI benefits are provided to those who can’t work due to a medical condition or other disability. For you to be eligible, the Social Security Administration (SSA) must conclude that you can’t do the kind of work you did before you became ill or disabled and that your condition will prevent you from being able to adjust to other work. Your illness or disability must have lasted at least a year or be expected to either last at least one year or result in death. To qualify, you must also have worked long enough and recently enough at a job at which you and your employer paid into Social Security. Self-employment income will qualify you as well if you paid the self-employment tax, which is both halves of Medicare and Social Security taxes. (If you worked for an employer, they would pay half of these taxes.) You’ll earn a “work credit” for each $1,470 you received in earned income in 2021, up to a maximum of four credits each year. This increases to $1,510 in 2022.
When Is Social Security Disability Taxable?
Whether your benefits are taxable depends on your income from all sources, as well as your filing status. To figure it out, add half of your Social Security benefits you received to any other income you might have, including unearned income like interest or dividends. If you’re married, you must also include any income or benefits your spouse earns or receives, even tax-exempt interest. Then check the tables below for your filing status to see what percentage of your Social Security disability benefits are taxable.
Single, Head of Household, Qualified Widow(er), or Married Filing Separately and Lived Apart for All of 2021
Your $26,000 income puts you in the 12% tax bracket. So you’ll pay 10% in taxes on the first $9,950 ($10,275 for the 2022 tax year), and then 12% on everything above that.
The Effect of Lump-Sum Payments
You could find yourself in a higher tax bracket if the Social Security Administration gives you a lump-sum payment, which it sometimes does. This typically happens when you receive payments for months during which you were disabled but had not yet been officially approved to receive benefits. This back pay is retroactive, and receiving all of it at once could increase your income for that year to the point where you move into the next highest tax bracket.
State Taxes on Disability Benefits
These rules apply only at the federal level. Thirteen states also tax Social Security benefits as of 2021: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia, although exactly how they do so varies by state. Some states follow the same rules as for federal taxes, but others have their own formulas and rules for disability benefits.
How to Report Taxes on Social Security Disability Benefits
The SSA will send you tax form SSA-1099 after the end of the tax year. This is the “Social Security Benefit Statement.” The total benefits you received will appear in Box 5. You can transfer this amount to line 6a of your 2021 Form 1040. Enter the taxable portion of those benefits on line 6b of your 2021 Form 1040—either zero, 50%, or 85% of the total, depending on your overall income.
