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2 min read

Social Security Disability Insurance Taxation

One of the most common questions that individuals have about Social Security Disability Insurance (SSDI) benefits is what tax rules apply when a recipient receives SSDI income. In some situations, recipients of SSDI benefits are taxed on at least a portion of these benefits. SSDI recipients often find that a knowledgeable disability benefits attorney may help with SSDI taxation and determine what amount must be paid in taxes.

Situations When SSDI Is Taxable

According to the Internal Revenue Service (IRS), an SSDI recipient can determine if any part of their benefits are taxable by comparing the “base amount” of an individual’s filing status with the total of all income that an individual receives from sources besides SSDI in addition to the half the value of SSDI benefits. Other types of sources can include income from investment, business profits, or other miscellaneous sources of income. Up to 85 percent of a person’s SSDI is taxable if their income is greater than:

  • $34,000 if the individual files as single, head of household, or married filing separately and the individual has lived apart from a spouse for a year or greater.

  • $44,000 if an individual is married filing jointly.

Situations in Which SSDI Is Not Taxed

SSDI benefits will not be taxed if an individual’s total income plus half of SSDI is less than:

  • $25,000 if the individual files as head of the household, single, or married filing separately. Individuals who are married filing separately must have lived separately from a spouse for a year or greater. Individuals who have lived apart from a spouse for a shorter amount of time will be taxed on SSDI benefits.

  • $32,000 if an individual files for SSDI taxation as married jointly.

Taxation on Back Pay for SSDI 6/26/2017

Individuals who receive lump-sum SSDI payments for the months that an individual was disabled but not yet approved for SSDI benefits have the potential to raise an individual’s annual income and create a larger tax obligation. To avoid paying a large amount in back taxes, individuals are allowed to apply the benefits owed from a prior year to prior tax returns. Treating these lump-sum payments in such a way often helps individuals lower taxes rather than if the lump-sum amount were included in the present year.

SSDI Taxation by the State of Colorado

Colorado is one of the few states that Colorado SSDI benefits according to the taxpayer’s federally adjusted gross income. Individuals who are under the age of 65 and receive SSDI can exclude up to $20,000 of benefits from their state taxable income. Individuals who are 65 and older can exclude up to $24,000 of benefits from their state taxable income. Law in the state of Colorado also states that any amount of SSDI benefits that are not taxed by the federal government are not added back into that individual’s adjusted gross income when assessing tax liability.

Consult with an Experienced Disability Attorney

Determining the amount of taxes that must be paid on SSDI benefits can be a particularly complicated process. If you require assistance in determining your tax liability for disability benefits, consider contacting a lawyer at Whitcomb, Selinsky, PC or its disability arm, Rocky Mountain Disability Law Group. Located in downtown Denver, our office can be reached at (303) 534-1958 or by filling out our quick and convenient online form.