As a disability attorney Memphis TN trusts to help them get benefits, I know tax season can be a stressful time. Fortunately I have some answers for your most common questions about SSDI and taxes:
Do I have to pay taxes on my Social Security disability benefits?
Most people who receive disability benefits don’t have to pay taxes on those benefits. If you live off the disability payments alone, or if you have only a small amount of side income, you likely won’t need to pay taxes.
The rules on SSDI and taxes depend mostly on what other income you might receive. If you or your spouse makes a significant paycheck on the side, you may need to pay taxes on a percentage of your benefits. But even then, the federal government sets that percentage according to how much you make.
What about the back pay I’m owed? Do I have to pay taxes on that?
If you receive a lump-sum payment (aka a big check) to cover all your back pay, you may need to pay taxes on it. But some people find they can limit those payments by applying part of the payments to an earlier year. So for example, if you get a check for back pay covering the last 2 years, you may be able to apply last year’s back pay to last year’s taxes, and that could lower what you owe next tax season.
Are there different rules for state taxes?
Most states don’t tax disability benefits. However, the few that do will use your income to determine how much to tax. So a lot of disability recipients won’t pay any taxes, and others will pay a marginal rate based on other income they bring in. So if your state collects an income tax and you make a separate income from your disability benefits, you may need to pay taxes on a percentage of your disability pay.
How do I know what I might owe in taxes?
If this all feels complicated, that’s because it is. SSDI and taxes are two of the most convoluted and frustrating processes on the planet. If you have questions about what you owe in taxes, you should ask an accountant or tax preparer to help. For people with complicated situations, a tax preparer can save you much more than they cost. Tax preparation services can usually give you an idea upfront about how much they’ll charge – just explain your situation honestly.
And if you have questions about SSDI or need help applying, contact me today at no charge. I’d be happy to help.