Is Social Security Disability Pay Taxed?

The answer to this question is tricky and can only be generally discussed. Typically, Social Security disability monies are not taxed. However, whether a social security disability benefit is taxed depends on one’s total income.To avoid taxation, your total income, which is determined by adding one-half of your disability benefits to all other sources of income, must fall below the threshold set by the Social Security Administration. If you are single, the threshold amount is $25,000. If you are married and file jointly, the threshold amount is $32,000. If you are married and live with your spouse but file separately, the threshold is $0, meaning at least some of your benefits are taxable. Also, Social Security retirement becomes taxable under the same circumstances that Social Security disability benefits do. Most states do not tax Social Security benefits and fortunately Michigan is such a state.

One should talk to an accountant to understand the IRS rules as a spouse may want to take a cut in pay to fall below the taxable threshold amount. Also, note that some other sources of disability like short or long term disability may be taxed as income depending on the policies.

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