SSDI stands for social security disability income. If you have SSDI, it’s good to know if it’s taxable or not. Below, we will take a deeper dive into both federal and state taxes, where you will have a better understanding of how SSDI affects that. Unfortunately, it’s not just a simple yes or no. It depends on your overall income and filing status. Keep reading to learn more about how SSDI affects federal and state income taxes.
Is SSDI Taxable?
If you receive SSDI, then there is a chance you’ll have to pay taxes based on your yearly income and marital status. However, you won’t be taxed on your benefits unless your total income is over the following amounts:
- $25,000 tax amount as a single, head of household, or if you’re a qualifying surviving spouse.
- $25,000 tax amount, and married but filing separately while living apart for at least a year.
- $32,000 tax amount while being married and filing jointly.
- $0 while married and filing separately, but living together throughout the year.
It’s good to note that if your disability benefits are subject to taxation, they’ll be taxed at your income tax rate. In other words, your tax rate would not be 50% or 85%. Your tax rate would probably be more like 10% to 12% of your benefits. The 50% and 85% percentages refer to the portion of your disability benefits that will be subject to taxation.
However, tax liability does not start until you reach the tax minimum. This means that you won’t be taxed on your benefits until your income reaches $25,000 or $32,000, based on your specific filing status. You will also receive an SSA-1099 so you can report the taxable portion of your benefits when doing your yearly tax return.
States That Tax SSDI
Most states don’t tax Social Security disability benefits. However, here’s a list of the states that do in some situations: Connecticut, Colorado, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Some of these states use the same income bracket as the federal government to tax SSDI benefits. However, most have their systems.
These states impose income taxes. They exempt 100% of Social Security benefits from a resident’s tax liability: Alabama, Arizona, Arkansas, California, Delaware, Washington D.C., Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Missouri, Nebraska, New Hamshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia, and Wisconsin.
The following states don’t impose state income taxes, which means that SSDI is not taxed by the state: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
How to Reduce Taxes on SSDI Benefits
Here are a few strategies when it comes to reducing your taxes on your SSDI benefits:
- Manage your combined income
- Roth conversions
- Delay Social Security benefits
- Manage capital gains
- Time withdrawals strategically
- Qualified Charitable Distributions
- Relocation
There are many other ways that you can reduce your taxes when it comes to SSDI benefits. These are just a few examples. In the end, SSDI is taxable in most cases. However, don’t get it confused with SSI. SSI is the Supplemental Security Income, and that is not considered taxable income.
Are You Wondering About SSDI and Federal/State Income Taxes?
If you have SSDI, you may be wondering how it affects your federal and state income taxes. There are a lot of logistics when it comes to that, and Tabak Law can help you make sure you are going about it the right way. Feel free to get in contact with them before the tax season comes up, so you know what to expect.