Are Social Security Disability Benefits Taxable?

Your Social Security disability benefits may be partially taxable. Like everything about the tax laws, it’s complicated. I’ll try to hit a couple of the most important parts.

Taxable Amounts

One-half of Title II Social Security benefits are taxable to the extent that the Social Security benefits, when added to the taxpayer’s gross income and some sort of nontaxable income, such as tax-exempt municipal bond interest, exceeds $25,000, in the case of a single taxpayer or $32,000 in the case of a married taxpayer, filing jointly. The taxed percentage goes up to 85% to the extent that the taxpayer’s income goes over $34,000 if the taxpayer is filing as a single individual or $44,000 if filing jointly.

Back Payments

Payments of back Social Security benefits typically are for periods that cover more than one calendar year. Back benefits covering two or more years might have not been taxable at all or only taxable in small part if they had been paid at the time they were due. The Internal Revenue Code makes a specific provision for this situation. If the taxpayer so elects, the amount included in gross income by reason of receiving these back Social Security benefits is only the sum of the increases in gross taxable income for the prior taxable years that would have resulted solely from taking into account the portion of the benefits paid for that prior taxable year. The election is made by writing in the letters “LSE” (for lump-sum election) to the left of line 21a on the form 1040. This does not mean that the Social Security claimant who receives a large amount of back benefits can or should file amended tax returns for prior years. The back Social Security benefits must be included in the tax return for the current year, but only to the extent that they would have been included if they had been paid when they were due.

Long-Term Disability Benefits

Things get really complicated if you’ve also received Long Term Disability benefits, usually from an employer-sponsored plan. You really need to see a tax professional about that sort of thing.