Are Social Security Disability Benefits Taxed?
Social Security Disability benefits are a lifeline for many Americans who cannot work due to a disability. If you're one of them, you probably want to know whether the benefits you receive are subject to taxation. The answer depends on several factors, including your total income and tax filing status.
At Gordon, Wolf & Carney, we have decades of experience helping clients apply for Social Security Disability benefits. We aren't afraid of taking on tough cases and handling them with dedication. Our award-winning attorneys can help you determine whether your disability benefits are taxable and work toward getting you the benefits you're entitled to.
What Are SSDI Benefits?
Social Security Disability Insurance (SSDI) benefits are meant to support individuals who have a significant work history but cannot work due to a disabling condition. This program is part of the broader social safety net provided by the government, intended to support workers by giving them financial assistance when they are most in need.
To qualify for SSDI benefits, you must have accumulated a certain number of work credits, which are typically earned through years of employment where you paid Social Security taxes. The amount of SSDI benefits you can receive is calculated based on your lifetime earnings before your disability began. These benefits cover basic living expenses so that those with disabilities can maintain a certain standard of living.
In addition to monthly payments, SSDI recipients may also qualify for Medicare after a 24-month waiting period. It is worth noting that SSDI is different from Supplemental Security Income (SSI), which is aimed at individuals with limited income and resources, regardless of their work history.
Are Disability Benefits Taxable?
In general, Social Security Disability benefits are not taxed for most recipients. However, if you have other substantial income, such as wages, self-employment income, interest, or dividends, your benefits could be taxable.
The Internal Revenue Service (IRS) uses a formula to determine whether your benefits are taxable. If the sum of half your disability benefits and all your other income exceeds $25,000 for individuals or $32,000 for couples filing jointly, you may need to pay taxes on a portion of your benefits.
It is also necessary to understand how your benefits are reported. Each January, beneficiaries receive a Social Security Benefit Statement (Form SSA-1099), which shows the total amount of benefits received in the previous year. This statement should be used to calculate income on your federal tax return.
You must keep detailed records of all your income sources to accurately assess potential tax liability on your disability benefits. A tax professional can help you understand tax regulations as they relate to disability benefits.
Everyone’s tax situation is unique, so personalized advice is critical for compliance and to maximize your financial benefits. Also, state taxation can vary significantly, with some states taxing Social Security Disability benefits and others not.
Maryland State Tax and Disability Benefits
Maryland residents must consider state taxes when determining whether Social Security Disability benefits are subject to state income tax. Some of the laws you should consider include the following.
Non-Taxable Benefits
In Maryland, Social Security Disability benefits are generally not subject to state income tax. This provides some tax relief, as beneficiaries do not need to include these benefits as part of their taxable state income.
State-Specific Exclusions
Maryland taxpayers can benefit from specific exclusions that exclude Social Security Disability benefits from being considered as income, reducing the overall taxable income for the state return.
Income Reporting Requirements
Although SSDI benefits are not taxed at the state level, beneficiaries must to report them properly on their Maryland tax returns for compliance and avoid potential issues with the state’s tax authority.
Impact of Other Income
Maryland residents musts also consider how other forms of income may affect their state tax positions. Significant additional income could influence the overall tax liability, but the exclusion of SSDI benefits can reduce the impact.
State Tax Assistance
SSDI beneficiaries in Maryland should seek assistance from tax professionals or attorneys familiar with state tax regulations. This ensures that their tax filing is accurate and that they are taking advantage of all applicable deductions and exclusions.
Understanding State Deductions
Maryland may offer additional deductions that can further reduce the taxable income for certain residents. These deductions can vary based on factors such as age, filing status, or eligibility for specific state programs. Beneficiaries should research or consult with professionals to identify any additional deductions that may apply to their situation.
Residency Considerations
Individuals who recently moved to Maryland must understand how residency status can affect state tax obligations. Part-year residents or individuals with multi-state income sources should be particularly diligent in understanding how their disability benefits and other income are taxed across different jurisdictions. This may involve filing part-year or non-resident state returns, which can affect how exemptions or exclusions are applied.
Social Security Disability Attorneys Serving Clients Nationwide
At Gordon, Wolf & Carney, our experienced attorneys have over a century of collective legal experience, allowing us to assist clients in Towson, Maryland, and nationwide with complicated tort, contract, and disability matters.
We are passionate about tackling challenging cases and are committed to our client's success. If you have questions about Social Security Disability benefits or need assistance, call to schedule a consultation.