SSDI Tax Basics
Most people with SSDI income don’t end up paying federal taxes, and most states don’t tax SSDI. The people who do pay taxes on Social Security Disability Insurance payments have additional income from a spouse or other source, or they live in one of the few states that tax this type of income. No matter which group you fall into, professional tax return preparation is well worth it.
A percentage of your monthly SSDI benefits can be taxed, if your household income is above certain thresholds set by the IRS. Thresholds are different, depending on whether or not you’re married and how you file your return. Check the IRS website for details that are accurate for this year.
Sometimes SSDI benefits owed to you add up before you get officially approved. When this happens, you could receive a retroactive SSDI payment including benefits for the current year and previous years. Do not treat this as income for a single year. If you do, you’ll end up paying unnecessary taxes.
SSDI Tax Deductions
You can deduct expenses related to collecting your retroactive SSDI benefits, which means part of our fee may be deductible. You can also deduct all or part of any disability repayments you make to an employer or insurance company. These calculations are tricky, though, so get a professional’s help.
Debts & SSDI Benefits
SSDI Debt Basics
In most cases, federal law makes it illegal for creditors to touch your Social Security Disability Insurance payments without your permission. The big exception to this rule is the federal government itself. It can withhold a portion of your SSDI payments for taxes or other debts you owe the federal government, as well as unpaid child support or alimony.
If you owe money for any of the items below, the IRS or another federal agency may withhold it from your SSDI benefits. There are limits to how much can be withheld, and some withholdings can be stopped if you prove they’re a hardship.
Food Stamp Overpayments
Federal Student Loans
Federal Mortgage Loans
Unpaid Federal Taxes
Other Creditors & Collectors
When you have unpaid bills, creditors or collectors can get a court’s garnishment order and take money from your bank account to pay a debt. However, SSDI funds deposited during the last 60 days cannot legally be taken for garnishment. Federal rules direct your bank or credit union to identify and protect these funds. This helps you keep your benefits, plus there is more you can do.
Protecting Past 60 Days: 2 Ways
If you plan to build up more than 2 months of monthly SSDI benefit payments in your account, or if you are expecting a retroactive lump-sum payment that you won’t spend within 60 days, you may want to:
- Keep your SSDI payments in a separate account. Don’t deposit funds from any other source into this account. That way, you can easily show that all the money in your account comes from SSDI.
- Receive your benefits on a debit card. You can choose to have your SSDI benefits transferred to an electronic debit card. This protects all of your funds from creditors, even those that were deposited more than 60 days ago.
Ready for True Help with SSDI?
empower is a personalized online tool that guides you through the SSDI application process and can help you use these benefits to return to work, if and when you medically recover. Get started by taking our free SSDI Assessment to determine your likelihood of qualifying.
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