When it comes to understanding your Social Security Disability Insurance (SSDI) benefits, many recipients have concerns about whether or not their SSDI benefit payments are taxable. Unfortunately, for SSDI, the answer to this question may not be a straightforward yes or no. The answer relies on your unique financial situation and a formula by the IRS, which determines your taxable amount on these particular benefit payments — we will discuss both in our post today.
When Would My SSDI Benefit Payments Become Taxable?
The IRS states on their page for “Regular & Disability Benefits” Your benefits may be taxable if the total of (1) one-half of your benefits, plus (2) all of your other income, including tax-exempt interest, is greater than the base amount for your filing status. The base amount for your filing status is:
- $25,000 — if you’re single, head of household, or qualifying surviving spouse
- $25,000 — if you’re married filing separately and lived apart from your spouse for the entire year
- $32,000 — if you’re married filing jointly
- $0 — if you’re married filing separately and lived with your spouse at any time during the tax year
Let’s Break This Down:
To begin, we need to break the formula into three parts: Part 1, Part 2, and Part 3.
Part 1: Calculating One-half of Your Annual SSDI Payment Benefits
Understand that 50% (one half) of your SSDI benefit payments is factored into this formula: This figure is calculated by (your monthly SSDI payment amount) x 12 months x 0.50 — this formula covers part of the IRS equation and equals Part 1.
Part 2: Calculating Your Other Earned And Passive Income For The Year
This segment is as simple as adding up all income you have earned, or passively gained, in a taxable year. This excludes your SSDI benefit payments and is solely all other income you have earned in a year either earned/passive/dividend income. This sum equals Part 2.
Part 3: Understanding Your Base Amount For Your Filing Status
The next step is to understand your filing status. Are you filing as:
- Single? (if this is your filing status, your income threshold is $25,000)
- Married filing separately? (if this is your filing status, your income threshold is $25,000)
- Married filing jointly? (if this is your filing status, your income threshold is $32,000)
- Or married, filing separately, and lived with your spouse at any time during the tax year? (if this is your filing status, your income threshold is $0)
Once you know your filing status, select the base amount for that status — this is Part 3.
Now You Have All Three Parts To Understand If Your SSDI Benefit Payments Are Taxable
You will write down the amounts from each part:
- Part 1 – (Your monthly SSDI payment amount) x 12 months x 0.50).
- Part 2 – The total sum of all income you earned, excluding SSDI benefit payments in the taxable year for which you are filing.
- Part 3 – Your base amount for your filing status.
The formula now becomes [(Part 3) – (Part 1 + Part 2)].
If this figure is a negative number, 50% of your SSDI benefit payments will be factored into your taxable income for the year.
More straightforward: If (Part 1 + Part 2) is greater than the (Part 3) base amount, 50% of your SSDI benefit payments will be factored into your taxable income for the year. Furthermore, for this formula, if it:
- Returns a number greater than or equal to zero
- Or if (Part 1 + Part 2) is less than (Part 3)
Your SSDI benefit payments are not factored into your taxable income for that tax year.
We Recommend Contacting A Qualified SSA Representative Or A Tax Professional
By contacting the Social Security Administration using their toll-free number at 1(800) 772-1213 or meeting with your preferred, qualified tax professional (CPA – Certified Public Accountant), you will gain a better understanding of your tax situation. While our formulas and quick tools to calculate your approximate status can help you understand if your SSDI benefit payments are taxable in a given year, the aforementioned individuals are the best resources for getting the best answer.