If you are receiving social security disability benefits, you may be wondering if they are considered income. This can be especially important to know around tax time, as misreporting or not reporting income can obviously be an issue.
Are Disability Benefits Considered Income by the IRS?
Before answering the question of whether disability benefits are considered income by the IRS, it should be stated that the Social Security Administration has guidelines on what is considered earned and unearned income. While disability benefits are not considered earned income, there are still other factors that play into what is actually taxed.
Earned Income vs Unearned Income
Earned income is the money that was made from an employer or from yourself if you have your own business. These kind of earnings are considered taxable nearly across the board. Unearned income, on the other hand, is money that you get as a result of something other than standard employment. Social security disability benefits are one of the top forms of unearned income, along with interest and dividends, unemployment, retirement income, child support and others.
Unearned income will have to be reported on your taxes separate from your earned income. This is because your other income will actually determine if your disability benefits are taxed or not. The IRS considers your disability benefits along with your investments, pensions and taxable disability plans. If you make less than $25,000 per year of taxable income, you will not be taxed on your disability benefits. A couple may make up to $32,000 per year without their disability benefits being taxed.
SSDI and SSI and the Tax Difference
SSDI and SSI are handled very differently when it comes to what is able to be taxed. This is because recipients of SSI are actually already considered to be very low income, and therefore will not be taxed on any income. However, anyone receiving SSDI payments may have what is considered significant income from other sources, and therefore be taxed on up to half of their SSDI benefits.
Understanding the rules with social security disability benefits and the IRS can be confusing. But having the right information ahead of time can be crucial to making sure you follow the rules and can predict what you should be receiving.
If you need more information, or help with a SSD case or denial, don’t hesitate to contact the professionals at Tabak Law.