Q: This past year was my first receiving Social Security Disability payments—will I need to pay taxes on those benefits?
With the end of tax season one week away, you may be one of the many people scrambling to get their tax information together at the last minute. If you’re ahead of the curve, you filed your taxes weeks ago and are resting easy. You may also be among those who received Social Security Disability Insurance benefits and did not work last year—so you assume that you do not need to pay taxes on those benefits.
Do You Need to Pay Taxes on Your SSDI Benefits?
Whether or not you will need to pay taxes on your Social Security Disability (SSDI) benefits will depend on the amount of income you received last year. If your income (which includes your SSDI benefits, taxable income, and tax-exempt interest) minus your deductions is greater than the base income (typically $25,000 for single filers and $32,000 for married joint filers), any amount of income you made over the base income for your status is taxable.
On top of figuring out whether a portion of your income will be taxable, you will also need to figure out at what percentage that portion will be taxed. Similar to a standard tax bracket system, the higher you are above the base income, the more your benefits will be taxed. This can greatly assist those individuals and families who are just above the base income for taxation, but not drawing enough money to be taxed at a higher rate.
While the tax legalese can be confusing, you should have received two forms from the Social Security Administration that should make the process easier: Form SSA-1099 and Notice 703, which is a worksheet that helps you determine your income.
Why Should I Put the Effort Into Calculating My Deductions and Income Properly?
While preparing your taxes and going over your income and deductions with a fine-toothed comb can be frustrating and time-consuming, it is well worth the time you spend. You protect yourself from audit, and have the possibility of not owing any tax or even a refund.
Sometimes, the best advice we can give our clients whose tax situation may be challenging is to hire a tax professional. While you may spend a small amount up front for their services, you have the best odds of minimizing your taxes. If you have yet to see your “tax guy,” make an effort to do so—your wallet will thank you!
Looking to learn more about SSDI income? Browse through our helpful online articles to brush up on your SSDI knowledge today!Related Links: