To qualify for Social Security Disability Insurance, you must meet certain conditions. We’ll help you navigate your eligibility and tax responsibility for Social Security disability income.
In the U.S., if you work long enough, pay your taxes, and meet certain income thresholds during your career, you can participate in Social Security programs. Over time, you pay into this system and can expect to receive several benefits for you and your family.
If you work but later become disabled and have limited resources and means to earn income, the Social Security Disability Insurance program can assist. The program pays benefits to you and your children. But because your taxes fund this program, you may wonder — is Social Security disability income taxable? Let's find out.
What is Social Security Disability Insurance?
Social Security Disability Insurance (SSDI) is a social insurance program funded by payroll taxes meant to help you if you become disabled. The program's administrator, the Social Security Administration (SSA), generally allows you to earn coverage benefits if you meet their definition of disabled and are unable to work for a year or more.
The Social Security Disability Insurance program provides modest — though vital — benefits to you if you have suffered a serious and long-lasting medical condition that meets Social Security's strict definition of disability. As a result, you can receive benefits if you meet the eligibility requirements.
Who's eligible for Social Security Disability Insurance?
In addition to meeting the disability requirements, you must have worked long enough and recently enough to qualify for Social Security Disability Insurance.
First, you must meet the work test. This test is based on Social Security work credits and requires you to earn at least a minimum amount of income in wages or self-employment income per calendar year. For each $1,470 (2021 amount) in wages or self-employment income that you earn per year you earn one credit. You can earn up to four credit per year. When you've earned $5,880 in 2021, you've earned your four credit for 2021.
Typically, you need at least 40 credits with 20 of these earned in the last 10 year period ending with the year of your disability. However, meeting the work test requirement can also depend on your age. It requires different amounts of Social Security credits since younger workers typically have not had enough time in the workforce to earn the full 40 credits. For those:
- Under age 24: You meet the work test if you earned 6 credits in the 3-year period when your disability began.
- Age 24 to 31: In general, you may qualify if you have credits equivalent to working half the time between age 21 and becoming disabled.
- Age 31 or older: You'll need to have earned at least 20 credits in the 10-year period immediately before becoming disabled.
Second, review the Social Security Administration's table to determine if you meet the duration of work test based on your age and when your disability began.
Third, you must be unable to work because of a medical condition that has lasted a year, is expected to last at least one year, or is expected to result in death. This means not having a partial disability and meeting the Social Security Administration's definition of disabled.
Fourth, you must be younger than your full retirement age as defined by Social Security.
If you meet the requirements above and qualify for Social Security Disability Insurance, certain members of your family may also receive benefits based on your work history.
What benefits does Social Security Disability Insurance offer?
The amount you receive from Social Security Disability Insurance depends on your average lifetime earnings before your disability began. Generally, the more you earned over a longer period, the more you'll benefit, up to a maximum amount. The Social Security Administration calculates your disability benefit based on the amount of your Social Security "covered earnings." Generally, these are your past earnings that have been subject to Social Security tax.
Your benefits are determined by averaging your covered earning over the 35-year period representing your top earning years. The SSA sees this as your average indexed monthly earnings (AIME). The SSA then applies a formula to your AIME to calculate your primary insurance amount (PIA). This serves as the base figure for the SSA to calculate your Social Security Disability Insurance benefit amount.
To understand your entire covered earnings history, the SSA provides access to your annual Social Security Statement. If you receive other disability benefits from private insurers, this will not impact your Social Security Disability Insurance benefits.
Receiving benefits from other government-sponsored programs may affect your Social Security Disability Insurance benefits. These can be programs such as workers' compensation or a temporary state disability program. Generally, Veterans Affairs (VA) and Supplemental Security Income (SSI) will not reduce your Social Security Disability Insurance benefit. However, getting Social Security Disability Insurance may reduce your Supplemental Security Income.
The Social Security Disability Insurance program rules limit your overall benefit under certain conditions. The combination of Social Security Disability Insurance and other government-sponsored disability programs cannot be more than 80% of the average amount earned before you became disabled. If this happens, the SSA will reduce your payments.
Is Social Security disability taxable?
You may need to pay taxes on your Social Security Disability Insurance benefits. This can happen if you receive other income that places you above a certain threshold. But, because SSDI requires you to be disabled and have limited income to be eligible, you might not have other income to exceed this threshold.
Common examples for when your Social Security Disability Insurance benefits may be taxable are if you receive income from other sources, such as dividends or tax-exempt interest, or if your spouse earns income. If this describes your situation, you will need to know the thresholds for when your SSDI becomes taxable.
The IRS states that your SSDI benefits may become taxable when one-half of your benefits, plus all other income, exceeds an income threshold based on your tax filing status:
- Single, head of household, qualifying widow(er), and married filing separately (did not live with spouse) taxpayers: $25,000
- Married filing jointly: $32,000
- Married filing separately but lived with your spouse at any time during the tax year: $0
For example, if you are married and file jointly, you can report up to $32,000 of income (made up of half of your SSDI benefits plus all of your other income) before needing to pay taxes on your SSDI benefits. If you earn more than these limits for these tax filing statuses, you have two different benefit inclusion rates that can apply.
- As a single filer, you may need to include up to 50% of your benefits in your taxable income if your income falls between $25,000 and $34,000.
- Up to 85% gets included on your tax return if your income exceeds $34,000.
For married couples who file jointly, you'd pay taxes:
- Up to 50% of the Social Security Disability Insurance benefits you receive when your combined income falls between $32,000 and $44,000
- Up to 85% of your disability benefits if your combined income exceeds $44,000
What is Supplemental Security Income?
Social Security Disability Insurance benefits and SSI benefits differ based on who receives them and why. SSI recipients do not need to meet the same disability or work credit requirements like those who receive Social Security Disability Insurance benefits.
Generally, SSI payments go to the elderly, blind, or disabled. Also, SSI benefit recipients often qualify for Medicaid assistance automatically.
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