When determining whether or not your disability benefits are taxable, there are several things to consider. Generally speaking, disability benefits are excluded from being considered gross income. However, they are included when calculating your combined income. Combined income is what the IRS is looking at when determining whether or not taxes need to be paid.
Step one in making this determination is to figure out if your income exceeds the IRS income limits. Generally speaking, if you are single and your income is over $25,000 but less than $34,000, then 50% of your disability benefits are taxable. If you are married and filing jointly and your combined income is over $32,000.00 but less than $44,000.00, then 50% of your combined income is taxable. If you are single and your income is over $34,000.00, then 85% of your disability benefits are taxable. Similarly, if you are married and filing jointly and your combined income is over $44,000.00, then 85% of your disability benefits are taxable.
There is one more scenario to consider here. Let’s assume you are working part-time and also receiving disability benefits. Your combined income would include your adjusted gross income, nontaxable interest and benefits. Make sense?
Ok, step two is to consider whether or not you received back benefits during the year. If you did, you are not required to claim the entire amount during that year unless your back benefits are only for that particular year. If the back benefits span more than one year, you can claim them based on the years that you should have received the benefits.
The SSA will send you a form called the SSA-1099. You can use that form to determine how much disability income should be claimed on your taxes.
If you have a child or children that are receiving auxiliary benefits on behalf of yourself or your spouse, they are most likely not taxable. However, if their benefits (or combined income and benefits if they are earning income) exceed $25,000.00, then they will need to file taxes.
If you have a child that is receiving disability benefits in the form of Supplemental Security Income (SSI)
If all else fails and you are not sure what to do, we always recommend that you consult a licensed tax professional. Each situation is unique and can be complicated, therefore always seek professional assistance with tax questions and filings.
If you have questions regarding disability benefits, reach out to us! We serve all of Solano County and are taking on new clients in Vacaville, Fairfield, Vallejo and all surrounding areas.