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Tax season is one of the most dreaded times of the year for many Philadelphia residents. It can be stressful and emotionally draining to prepare a tax return, particularly when unique circumstances are present. One such unique circumstance comes when individuals over the age of 65 receive Social Security payments, including Social Security disability benefits.

Many individuals question whether their disability benefits are taxable. The answer depends on different factors, including the nature of the benefits received. Government-provided disability benefits are tax-free for many. This includes benefits received under the Supplemental Security Income program.

It is not the case for everyone, however, as there are certain circumstances in which disability benefits may be taxable. For instance, individuals who receive benefits under the Social Security Disability program may have a portion of their benefits taxed. Indeed, about one-third of beneficiaries have to pay taxes on their benefits.

The differentiating factor in whether someone pays taxes typically has to deal with the level of income they receive in addition to the Social Security benefits. If a person’s income is too high relative to the IRS threshold, then they will be taxed. Currently, a person who files a federal tax return as an individual and who has more than $25,000 in income will have to pay taxes. Similarly, joint filers with an income of more than $32,000 may have to pay taxes.

Ultimately, the tax consequences are just one of several differences that exist between Supplemental Security Income and Social Security disability benefits. It is important for individuals to understand these differences to know how their particular benefits will be impacted.

Source: New Jersey 101.5, “Are disability benefits taxable or tax-free?,” Karin Price, July 26, 2016

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