Social Security Disability Insurance is an essential program for people who are unable to work due to physical or mental health conditions. However, many beneficiaries may not realize that collecting Social Security Disability Insurance benefits can affect their taxes. Keep reading to learn what you need to know!
First, it’s important to understand that Social Security Disability Insurance benefits are taxable income. If you receive Social Security Disability Insurance benefits and have other sources of income, such as wages, self-employment income, or investment income, you may need to pay taxes on a portion of your Social Security Benefits.
The amount of Social Security Disability Insurance benefits that is taxable depends on your “combined income.” Combined income is the sum of your adjusted gross income, nontaxable interest, and half of your Social Security Benefits. If your combined income exceeds a certain threshold, a portion of your Social Security Benefits may be taxable. For example, if you are single and your combined income is between $25,000 and $34,000, up to 50% of your Social Security Disability Assistance may be taxable. If your combined income is over $34,000, up to 85% of your Social Security Benefits may be taxable. If you are married filing jointly, the thresholds are higher, and the percentage of benefits that may be taxable is the same.
It’s important to note that not all states tax Social Security Disability Assistance. As of 2021, 37 states, including Ohio, and the District of Columbia do not tax Social Security Benefits. However, if you live in a state that does tax Social Security Benefits, you will need to factor that into your tax planning.
One strategy for managing the tax impact is to have taxes withheld from your benefits. You can elect to have federal income tax withheld from your Social Security Benefits by completing Form W-4V, Voluntary Withholding Request. This can help you avoid owing a large tax bill at the end of the year.
Another strategy is to spread out your income over multiple years. If you have other sources of income, such as investment income or rental income, you may be able to defer some of that income to future years. This can help you stay below the combined income threshold and reduce the amount that is taxable.
It’s also important to consider the impact of Social Security Disability Insurance benefits on other tax credits and deductions. For example, if your combined income is too high, you may not be eligible for the Earned Income Tax Credit (EITC). Similarly, if you have medical expenses related to your disability, you may be able to deduct those expenses on your taxes. But, you will need to itemize your deductions, which may not be beneficial if your standard deduction is higher.
In summary, collecting Social Security Disability Insurance benefits can affect your taxes in several ways. Because it’s taxable income, a portion of your benefits may be taxable if your combined income exceeds certain thresholds. You may be able to manage the tax impact by having taxes withheld from your benefits, spreading out your income over multiple years, and considering the impact on other tax credits and deductions. If you have questions about how Social Security Disability Assistance will affect you, it’s important to consult with a tax professional.
The Roose & Ressler Team is located in Lorain, Toledo, and Wooster, Ohio. You can count on us as your local disability specialist to analyze your case thoroughly to determine what is necessary for you to receive benefits. We assess the best methods on how to prove the crucial facts of your case and gather the necessary evidence. Having 40+ years of experience serving Northern Ohioans, we know the ins and outs of the local disability process.