Disability Payments Taxable You Need to Know More

Some Social Security Disability payments beneficiaries have to pay federal income taxes but others do not. Generally speaking, if Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) is your only sources of income, you will not have to pay any federal income taxes on your Social Security Disability benefits.

About 2/3 of Social Security Disability recipients don’t pay federal income taxes on their Social Security Disability payments. Whether you have to pay taxes is dependent on your level of income. In 2011, if your combined income that is taxable is not greater than $ 25,000 for a single person or $ 32,000 for a married couple filing jointly, you don’t need to pay income taxes.

State and local income taxes may apply to your disability benefits, and you’ll want to check with your state and local authorities or your income tax preparer or accountant to make sure that you are aware of any state or local income taxes you will need to pay. If you’re exempt from federal income tax on your Social Security disability benefits, you won’t have to pay any income tax, but you should confirm this with an accountant.

It is especially important that you see an accountant or tax preparer when you start if your income is high enough that you expect to pay taxes collecting SSDI. You will want to make sure that you have enough deducted or put money aside to cover your income tax obligations.

It is worth noting that Social Security Disability benefit payments are taxed differently than other income. Broadly speaking, only half of the Social Security Disability benefit payments are counted as taxable income. Of course, the rest of your income is taxable under the standard rules, regulations, and regulations that apply.

To determine whether or not you’ll have to pay federal income taxes you will need to add all of your income up.

Federal Taxation of Social Security Disability Benefits

If you’re married and you file jointly, and you and your spouse have more than $32,000 per year in income (including SSDI benefits), a portion of your SSDI benefits are subject to tax. If you are single, and you have more than $25,000 in income per year, a part of your SSDI benefits will be subject to tax.

Taxation of Social Security Disability Payments Backpay

Large lump-sum payments of back payments of SSDI (payments of benefits for the months you were disabled but not yet approved for benefits) can bump your income up for the year in which you get them, which can cause you to pay a bigger chunk of your backpay in taxes than you should have to. You are allowed to apply the benefits owed to prior tax returns from a previous year, lowering your income for the year to avoid losing part of your backpay this way. You should ask a lawyer or CPA for help on this.

Individual disability income insurance

The rules surrounding taxation of individual disability income insurance benefits are usually simple. The benefits you receive are tax-free since you pay the premiums with after-tax dollars. However, unlike health insurance premiums, you can not deduct premiums paid for individual disability income insurance as a medical expense.

Sometimes, your employer pays for an individual disability insurance policy on you. If you are considered to be a key employee of the business this might be the case. Different rules may apply, in that case. Then the premium isn’t deductible to the company if the employer gets the benefit when received by the business, and the benefit is not taxable.

Employer-Sponsored Disability Plans

The tax treatment of benefits under an employer-sponsored disability plan depends entirely upon who pays the premiums on the policy. If the company does not include the cost of the premiums in your gross income and pays the premium benefits you receive on a claim will be fully taxable.

On the other hand, if the employer merely makes a disability payments coverage available to you, and you pay the entire premium without taking a tax deduction for it (after-tax), then the benefits received will be tax-free to you.

Things get more complicated when the premium is shared between the employer and worker. In that situation, the prorated share of the premium paid by the employer will be applied to the plan benefit and will be taxable to the employee. However, the percentage will mean a matching percentage of the benefit can be received tax-free.

The key to the tax-free benefit is of course that you’re paying your share of the disability plan premium with after-tax bucks (no tax deduction when paid).

Is long-term disability income taxable?

You may be wondering how it will impact your taxes if you have Long Term Disability insurance. Depending on how your plan is paid for, you might need to pay taxes on any benefits you have received.

It depends on who paid the premiums for the policy and whether post- or pre-taxed income was used. If you paid for the whole cost of the policy (with post-tax dollars), then the benefits are generally not considered taxable. You pay the premium on your own, and the advantages are yours tax-free. If an employer paid for the plan you are receiving benefits through unless the cost of the premium is reported as income to 32, however, benefits often do count as income.

Short-term disability income taxable

Is short-term disability insurance income taxable or not? You will either pay taxes on the benefit or on the premium, but never both. Your method of payment may be determined by you, and other times determined by a third party: your company or government entity.


Taxes on disability payments can be rather complex. Be sure consult with that individual regarding income and disability benefits, if you had retained the help of a disability lawyer during the claims procedure.

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