Social Security Disability Insurance is a benefit that supports disabled Americans who can no longer work. Many people in New Jersey rely on SSDI to get by when they are sidelined due to a long-term disability. However, in some situations, this benefit is taxable. People who receive SSD benefits need to be aware of what their tax liability may be.
SSDI is paid out by the Social Security Administration. It’s different from SSI and retirement benefits. To qualify for SSDI, people must have worked at some point and be unable to continue their work. The amount of SSDI they collect depends on the number of work credits they have.
When SSDI can be taxed
Social Security Disability Insurance is not always taxed. Whether or not it is depends on the total income of the recipient. This is determined by adding 50% of the SSD payments to all other sources of income, including things like interest and stock dividends, plus the income of the recipient’s spouse. Disabled people in higher income households are more likely to owe tax on their SSD benefits.
Tax on SSDI is figured the same way standard income tax is. It’s determined by where the recipient falls in terms of tax brackets. People who only receive SSDI may not owe any taxes. The threshold for this changes with time. As of 2020, the threshold for a single person was $25,000. For married couples filing jointly, it was $32,000.
In some cases, the SSA makes lump sum payments, which can push recipients into a higher income tax bracket. Anyone who receives SSDI and has questions about their tax assessment should seek advice from professionals like accountants and lawyers. They may be able to help clients communicate with the IRS and SSA to resolve an issue.