Don’t Let SSDI Taxes Catch You Off Guard! Find Out If You’ll Have to Pay!

Receiving Social Security Disability Insurance (SSDI) benefits can provide much-needed financial relief, but did you know that these benefits could be taxed? Many SSDI recipients don’t realize that depending on their income level, they might owe federal taxes on their benefits. Let’s break down how SSDI taxes work, when you’ll have to pay, and what you can do to avoid it.

Are SSDI Benefits Taxable?

The short answer: Yes, SSDI benefits can be taxed. The amount that is taxable depends on your overall “combined income,” which includes:

• Your adjusted gross income (AGI)

• Nontaxable interest (like certain types of municipal bond interest)

• Half of your SSDI benefits

So, if your combined income goes above certain thresholds, a portion of your SSDI benefits may be taxable.

When Do You Have to Pay Taxes on SSDI?

Here’s how to figure out if you need to pay taxes on your SSDI benefits:

• Single Filers: If your combined income is more than $25,000, you could end up paying taxes.

• Married Couples Filing Jointly: The threshold for paying taxes rises to $32,000.

• Married Couples Filing Separately: If you live apart from your spouse all year, the threshold is still $25,000. But if you live together, your SSDI benefits are likely taxable.

And, it gets more complicated. If your combined income exceeds $34,000 (for single filers) or $44,000 (for married couples filing jointly), up to 85% of your SSDI benefits can be taxed!

How Do You Calculate SSDI Taxes?

To calculate whether you owe taxes on your SSDI benefits, you’ll need to figure out your combined income. Add together your:

• Half of your SSDI benefits

• Other income (like wages, savings, or retirement income)

Then, compare that total to the IRS income thresholds for your filing status. If you’re over the limit, some or all of your SSDI benefits will be taxed at the usual income tax rate.

What Can You Do to Avoid SSDI Taxes?

The good news is there are ways to reduce or avoid paying taxes on your SSDI benefits:

1. Reduce Your Other Income: If possible, lower your income from other sources, such as by contributing to tax-deferred retirement accounts.

2. Consider Filing Separately: If you’re married and living apart from your spouse, filing separately may help you avoid the tax burden on your SSDI benefits.

3. Adjust Your Tax Withholding: If you know you’ll owe taxes, you can adjust your withholding or make estimated tax payments throughout the year to avoid a big surprise at tax time.

Final Thoughts

While SSDI benefits provide essential financial support, they aren’t entirely free from tax obligations. But knowing the rules ahead of time allows you to plan and minimize the impact on your finances. If you’re nearing or already over the income threshold, it’s worth consulting a tax professional to ensure you’re following the rules correctly and finding ways to reduce the taxable amount.