Disability Benefits and Taxes

SSDI Lawyers in Chicago

Sometimes Social Security Disability Insurance (SSDI) benefits are subject to tax, but most often SSDI recipients don’t wind up paying taxes because they don’t earn other income. However, if your spouse has income or you have some other household income, you will have to pay taxes. If you have questions about disability benefits and taxes, you can consult an experienced Chicago Social Security attorney.

Disability Benefits and Taxes

Most states, including Illinois, don’t tax Social Security disability benefits, but the federal government does. How you file taxes can affect the taxing of your disability benefits. People who are married and file jointly will have taxes assessed based on their joint income. If you have more than $32,000 each year in combined income and this includes half of your SSDI benefits, part of your SSDI benefits will be taxed.

However, if you file as a single person and you have over $25,000 but less than $34,000 in income, part of your SSDI benefits will be taxed. How much of your benefits will be taxed is contingent upon how high your income is. Usually when the income is $25,000-$34,000, you’ll need to pay on half of the value of benefits. If you’re single and make more than $34,000, 85% of your benefits can be taxed. The calculation can be complex.

Generally, when disability benefits are taxed, they’re taxed at a marginal income tax rate. Only those with higher incomes would be likely to have their SSDI benefits also taxed at a significant rate. However, if you have a large lump sum settlement that’s not structured appropriately or payment of back payments of SSDI, you could have a high income for that year, and you’d have to pay more in taxes than you otherwise would. You can apply SSDI benefits you were owed in a prior year to a prior tax return in order to lower your income for the year in which you received a lump sum payment. For example, if you were entitled to 36 months’ worth of SSDI disability payments and instead received them all in one year, you could amend the prior three years’ tax returns.

Income from Work While Receiving SSDI

If you work and receive SSDI benefits, you’ll need to report what you make to the Social Security Administration (SSA). You can’t make more than a certain amount of income and still be eligible for SSDI. However, you might have income and still get benefits if you’re in a trial work period or you have an extended period of eligibility. The income you get during the trial period or the extended eligibility period can change your tax situation, making it advisable to consult an experienced attorney about your options.

You can earn income while testing whether or not you are able to work and still meet eligibility requirements for SSDI. Disability won’t terminate in that case until you complete 8 trial non-consecutive work months during a 60-month period. In 2019, a trial work month is one in which you earned over $880 and where you’re self-employed, you work over 80 hours total. After you finish those trial work months, you can go into an extended eligibility period for another three years. In that three years, you could still get SSDI for a month in which you earn under $1220, but if you make more than $1220, you won’t get benefits for that month. If your earnings are more than $1220 after three years, it’s likely the SSA will determine you aren’t disabled. During either the trial period or the extended eligibility period, you should be aware that you will probably have higher income, consisting of both SSDI payments and income, and for that reason, your taxes may be affected.

Consult a Skillful Chicago Attorney Regarding Your SSDI Benefits

If you’re concerned about disability benefits and taxes in Chicago, you can talk to a skillful and knowledgeable SSDI lawyer. At Katz, Friedman, Eisenstein, Johnson, Bareck & Bertuca, we represent SSDI claimants and appellants in Champaign, Rockford, Aurora, and Quincy as well as Winnebago, Cook, Adams, Sangamon, and Kane Counties. Contact us at 312-724-5846 or by completing our online form.