It has been said that there are only 3 guarantees in life and one of those is that you will have to pay taxes. Naturally then, disabled persons constantly ask us if Social Security disability benefits are taxable. The good news is that only some people will have to pay taxes on their benefits.
The rules on paying taxes for disability benefits are the same as those for retirement benefits. In fact, less than one-third of beneficiaries (either disability or retirement) have to pay taxes on their benefits.
Every year the Social Security Administration will send an SSA-1099 to those receiving disability or retirement benefits. This form, like your W-2, will document the total dollar amount of benefits received in a given year. Whether you will have to pay taxes on your benefit depends on your filing and income status.
If you file a federal tax return as an “individual” and your total income is more than $25,000, you will have to pay federal taxes. If you file a join return, you have to pay taxes only if the total income between you and your spouse exceeds $32,000.
Since most beneficiaries live on a monthly fixed income, there is concern regarding ability to pay any taxes at the end of each year. For this reason, the Social Security Administration offers beneficiaries the option of having a select percentage of their monthly benefit check (7, 10, 15, or 25%) withheld for federal tax purposes. If you are interested in having federal taxes withheld from your benefits, please contact your local Social Security office to obtain the proper forms. There is no requirement to have any amount withheld for federal tax purposes, and the amount withheld can be changed at any time.
There is no similar withholding for state or local taxes. Beginning in 2008, Wisconsin exempted Social Security benefits from state taxes.
The above information relates to disability benefits only. Supplemental Security Income payments are not subject to federal taxes, so you will not receive an annual form SSA-1099. However, if you receive both SSD and SSI, the SSD payments are still taxable.