Understanding Social Security Disability Benefits and Taxes

It’s often said that death and taxes are the only sure bets in life, so you can’t blame people for wondering if their Social Security benefits will be taxed. For people who rely on these benefits as their only source of income, like disabled people who can no longer work, it’s important they understand exactly how much money they are receiving each month and whether it will be taxed.

When are Social Security benefits taxed?

Whether your benefits are taxed depends on your total income. You can calculate your income by adding half of your disability benefits to your other sources of income.

Listed below are the thresholds that decide if your benefits will be taxed or not.

      • Individuals. Single people who make more than $25,000 a year but less than $34,000 will pay taxes on half the value of their benefits. If you earn more than $34,000 a year, up to 85% of your benefits may be taxed.
      • Couples. People who file jointly and make a combined income up to 32,000 will pay taxes on half of their benefits. Couples who make more than $44,000 annually will pay taxes on up to 85% of their benefits.

Benefits are typically taxed at marginal rates of about 10-12% on 50%-85% of your benefits. If your income is significantly higher, you may have to pay between 22%-24%.

What about state taxes?

Different states have different rules regarding taxes on Social Security disability benefits. In Colorado, you can exclude up to $20,000 of state taxable income if you are under 65 years old. People who are over 65, can exclude up to $24,000 of state taxable income.

Back pay

It can take time for your disability benefits to be approved and when they are approved, you may receive a large payment that pushes your income for that year above the threshold and increases the back taxes you owe. In order to avoid paying too much in back taxes, it is legal to file the SSDI that you were owed from a previous year onto that year’s tax return. This is best done with the assistance of a qualified tax attorney.

Contact an experienced SSDI attorney in Colorado

If you have applied for SSDI benefits and were denied, our SSDI attorney can help. At the Law Office of John A. Anderson, we have 15 years of experience helping clients claim the benefits that are rightfully theirs. We are dedicated to providing strong and compassionate legal services to clients in Brighton, Commerce City and Thornton. If you’re having difficulty claiming your Social Security disability benefits, give us a call at (303) 880-7994 or contact us online.