Social security disability program is an insurance program based on FICA taxes collected through your paychecks. Most social security claimants are not taxed. In fact, only one-third of the claimants actually end up paying taxes on their SSDI claims. Also, the benefits from a supplemental security income, SSI are rarely taxed ever. This is because if they had enough money to pay the taxes, they would not be granted the SSI in the first place.
On the other hand, people who actually pay social security taxes do so because they may have income sources from other family members or assets such as trusts. For instance, if you or your spouse have a stable income from another job or family assets, then your SSDI may be taxed by the federal government.
Federal taxation on your Social Security Disability Insurance
Here is how it works. If you or your spouse file jointly, you may actually have to pay a lesser amount of taxes than if you both filed individually. For instance, if you and your spouse are NOT joint filers and pay taxes individually,with an annual total income above $25,000 and less than $34,000 you would have to pay taxes on half the amount of benefits you receive under SSDI. However, if you and your spouse are joint filers, you could earn up to $32,000 before having to pay taxes on half of benefits you or your spouse receives.
The percentage of benefits on which you are taxed may heavily depend on your marital status and the amount of your annual income. For instance, if you are single and earn above $34,000 or if you are married and earn above $44,000 then almost 85% of your benefits would be subject to taxation.
Simply put, if you earn higher incomes, the amount of benefits that would be subject to taxation would be marginal. This means that not the whole amount of your benefits would be taxed. Consider for example, if you earn less than $32,000 as stated above, the amount of taxes would be a 10-15% tax on 85% of your benefits. Similarly, if you earn upto $45,000 the percentage of taxation applied would be higher, i.e., 30-35% taxes on 85% of your benefits and so on.
You may also be required to pay a higher amount of tax if you receive a lump sum or a backpay. This is when due to some reason your benefits were stopped and then started again. For instance, you changed your address but failed to inform the SSA of the change in your address. In this case, the social security mails and checks may never have reached you or the SSA cancelled your benefits due to inability to contact you. Whatever reasons for a lump sum or a backpay, once you receive the amount, all of 85% of the total amount would be subjected to taxes on the rates of the year in which these lump sums were actually due.
Lastly, not all states tax the social security benefits from the citizens. Also, since each state has its own laws on taxation of benefits, some states may actually collect taxes on your SSDI just like any other federal taxes.
If you find yourself in similar situations and not know if you are being taxed rightly or on how much amount you should actually be taxed, you can consider talking to a social security attorney for more legal guidance.