A man and woman find out if social security disability income is taxed

Disability Benefits Are a Financial Relief. Is SSD a Tax Relief, Too?

When health challenges keep you from working, managing the costs of daily living takes extra care. You learn to stretch every dollar and count every penny.

Social Security Disability (SSD) benefits are a great help, but they typically only cover your basics. And under certain situations, taxes can cut into them.

Luckily, if you live in Indiana you don’t pay state taxes on your benefits. Depending on your circumstances, federal taxes on your social security disability income may still be an issue.

The IRS may deem some earnings taxable if you’re receiving benefits through a spouse or if you gain income through sources other than work.

The experienced disability advocates at Hanley Disability help people across Indiana best understand their situation, apply for disability, and win the benefits they deserve.

We cannot do your taxes for you—you’ll need to consult a tax professional for that. But we can guide you through the disability benefits process, including if you need to appeal a denial.

We created this page to give you a general idea of what to expect from Social Security Disability and taxes. Every case is different.

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Hanley Disability offers a FREE evaluation of your case and will discuss your options with you. From helping you obtain benefits or appealing a denial, to getting answers about taxing your social security disability, Hanley Disability Advocates will be there every step of the way. Let us make a difference in your life.

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Two Hanley Disability attorneys

Do I Have to Pay Taxes on Social Security Disability Benefits?

To qualify for Social Security Disability Insurance (SSDI), you must have worked in the past but no longer can because of your health. If you can’t work, you likely don’t earn enough income to pay taxes on your benefits.

This can change, however, if you have other sources of income.

These include your spouse’s income and any dividends or interest you earn on investments. When you combine these sources with your Social Security Disability benefits, you may exceed the IRS’s limits on what you can earn and remain tax-free.

The IRS will tally these income sources and half of your disability benefits to determine your “combined income.”

Don’t worry—this doesn’t mean you’ll lose half your benefits. It just means the IRS only counts half of them toward your taxable income.

Once the IRS determines your combined income, it compares them against its tax thresholds. As of 2024, these were the brackets:

  • For unmarried individuals earning:
    – $25,000-$34,000 – 50 percent of your benefits are taxable.
    – Above $34,000 – 85 percent of your benefits are taxable.
  • For married couples filing jointly and earning:
    – $32,000-$44,000 – 50 percent of your benefits are taxable.
    – Above $44,000 – 85 percent of your benefits are taxable.
  • For married couples filing separately and living apart for the entire tax year:
    – $25,000-$34,000 – 50 percent of your benefits are taxable.
    – Above $34,000 – 85 percent are taxable.
  • For married couples filing separately and living together at any time in the tax year:
    – 85 percent of your benefits are taxable.

As you can see, it’s complicated.

Your tax professional can help you sort through your circumstances and find the best strategy to ease any tax burden. For example, you can pay estimated taxes every quarter. Or you can spread your income over several years in some cases.

All this doesn’t take away from the relief Social Security Disability benefits can still provide. Don’t let the possibility of taxes discourage you from seeking help.

You know . . . you paid taxes when you worked so you’d be covered by these benefits in the first place.

Our disability advocates at Hanley Disability are here to help you at any stage of the application process. In Indianapolis, Danville, Franklin, Lebanon, Noblesville and all across Central Indiana, get in touch with us.

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A husband and wife sitting at a table and speaking.

Do I Have to Pay Taxes If I Receive SSI Benefits?

While SSDI is for individuals who have worked in the past and paid into the Social Security system, Supplemental Security Income (SSI) is for folks who’ve never been able to work much, or for a long time, because of their health.

SSI provides monthly checks and access to Medicaid to manage your health care.

Because you can only qualify for SSI if your income is below a certain level, none of those earnings are taxable, according to the IRS.

If you start to earn any income great enough to require paying taxes, it will likely disqualify you from SSI altogether.

On top of the daily challenge of living with a debilitating health condition, all the rules are complicated to navigate. It can be overwhelming.

For the disability advocates Hanley Disability, you’re more than just numbers in a calculation. We see the whole person in you and approach your case with the compassion you deserve.

Our disability advocate firm has a 45-year legacy of helping our neighbors in Indiana.

We’re here to help you tap into benefits that can give you peace of mind and a better life.

You pay no fee for your disability advocate until you win benefits.

Call Hanley!
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