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Do I Have To File Taxes When Receiving Disability Benefits?


If you receive disability benefits, you may be required to file a federal income tax return. Determining whether you must file an income tax return and pay taxes when receiving disability benefits is not as easy as it is when you receive earnings for working at a job.

A number of factors come into play when it comes to deciding whether you must pay taxes on money received through Social Security disability and private or employer-sponsored long-term or short-term disability plans. The source of the benefit payments is only one factor that you must take into consideration, so avoid incurring penalties with the Internal Revenue Service by learning the rules that determine whether you must file taxes when receiving disability benefits.

Reporting long-term and short-term disability benefits as income

If you have an employer-sponsored disability plan where you work and receive benefits through it, the money must be reported as taxable income to the IRS. An employer-sponsored is one where your employer pays the premiums to the disability insurance company. You need not report benefit payments as income if you pay the premiums for the disability policy that you acquired on your own or one that is provided through your employer.

It gets trickier when you and your employer each pay toward the disability plan. In that case, the disability benefits that you receive as a result of the premium payments made by your employer are reportable as income. The portion of the disability benefits received as a result of the premium payments that you made would not be reportable income.

Think of it this way. If you and your employer each pay one-half of the premiums for a disability plan that pays you $1,000 each month, only $500 a month is considered reportable income that would go on your federal income tax return at the end of the year.

Disability benefits received from the following sources must be reported as income because you do not pay at least part of the premiums:

  • Union welfare fund
  • State-sponsored disability fund
  • A plan sponsored by an association of employers or employees

Get professional assistance from a tax adviser if you are not sure whether a payment that you received while disabled and out of work is reportable as income. For example, the IRS generally treats as a wage or salary substitute money you receive from an employer to help you to meet household expenses while out of work recovering from an injury.

Reporting Social Security disability benefits as income

The Social Security Administration has two programs paying benefits to people who are unable to work because of a disability. Supplemental Security Income is a need-based program with strict income and resource limitations. Although administered by the SSA, SSI is not funded by Social Security taxes paid by workers and employers, which is in contrast to the Social Security Disability Insurance program, that relies on payroll taxes for funding.

SSDI eligibility is based on a worker having worked for a long enough duration at a job with earnings subject to payment of Social Security taxes. Unlike the SSI program, you may have income through other sources while receiving disability benefits. This is an important consideration in determining whether you must file a tax return and report the disability benefits as income.

SSI benefits are not taxable as income, so you usually would not be required to file a tax return unless you had income from other sources that is subject to taxation. The exclusion from treatment as taxable income does not extend to Social Security retirement, survivor and SSDI benefits.

Reporting SSDI benefits as income depends upon how much you received in benefits and in income from other sources. You may have to report SSDI as income if the total of one-half of the SSDI benefits that you received combined with the other income received from all other sources exceeds a predetermined base amount set by the IRS.

The base amounts set for each type of filing status include the following:

  •  If you are single, head of household or a qualifying widow or widower, the base amount is $25,000.
  • It’s also $25,000 if you are married, but you live apart from your spouse and file separately.
  • If you are married and file a joint return, the base is $32,000.

There is a zero-dollar base for people who live apart from their spouse, file a separate return, and lived together with their spouse during any part of the year.

As an example of how the base amount affects your obligation to report disability benefits as income, if you had SSDI benefits totaling $1,300 per month during the year, you received $15,600 over 12 months. You also had income from other sources that totaled $13,000 for the year. Adding one-half of the SSDI benefits, $7,800, to the $13,000 in other income equals $20,800. If you file as a single person, your SSDI benefits are not taxable as income because you do not exceed the base amount of $25,000.

Contact a disability lawyer to learn more

A disability lawyer or disability advocate at London Disability has answers to questions that you may have about disability benefits. Contact them today for a free consultation.

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