If you’re thinking of applying for Social Security disability insurance (SSDI) benefits, you may be wondering if these benefits are considered taxable income. Your tax liability will depend on your total household income. However, only about one-third of all SSDI recipients owe taxes on their benefits. 
SSDI and Federal Taxes
As of 2020, SSDI payments are considered taxable for individuals who have over $25,000 in yearly income or married couples with over $32,000 in yearly income. (Your income is one-half of your SSDI benefit plus the full amount of any other sources of household income.) If you are single and have no other sources of income or married with a spouse who either works in a low-paying position or does not work full time, you will likely owe no taxes for your SSDI benefits.
If your household income is high enough to owe taxes, only a percentage of your SSDI benefits will be subject to tax. Benefits are either 50% or 85% taxable, depending on your total household income. If your benefits are taxable, they are taxed at your marginal tax rate—not the 50% or 85%. Marginal tax rates are based on your income but are typically between 15% and 25%.
While your monthly benefit may not be taxed, it’s important to consider that a large back pay award will bump up your yearly income. This means, you could owe taxes for the year when you are first approved for benefits, then have your tax liability eliminated in the following years.
To avoid any unpleasant surprises, it’s a smart move to speak to a qualified accountant who can review your personal finances and help you take any steps that are recommended to minimize your tax liability.
SSDI and State Taxes
Virginia, like most states, does not tax SSDI payments. SSDI is considered a form of early retirement, and Social Security retirement benefits are also provided free of tax liability.
Have You Or A Loved One Been Denied Social Security Disability Benefits?
If you or a loved on has been denied Social Security Disability Benefits you need to speak with an experienced SSD attorney as soon as possible. Please contact us online or call our Virginia Beach office directly at 757.490.3500 to schedule your free consultation. We have offices throughout Virginia including Chesapeake, Newport News, Norfolk and Suffolk.
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