March 1995 • No. 2, Article 2
On the other hand, Social Security disability insurance (SSDI) benefits may be taxable. If your only income (including that of your spouse) is SSDI, the benefits will not be taxable. But, if you receive SSDI benefits and have other income then a portion of your benefits may be subject to income tax. Generally, if you combine half of your SSDI benefits for the year with your adjusted gross income and the total amount is over $25,000 for an individual or $32,000 for a married couple filing jointly, then a portion (up to a maximum of 85%) of your benefits will be taxable. To determine the amount of your tax liability, follow the instructions in your IRS 1040 preparation guide book, consult IRS Publication No. 915 or seek the advice of a qualified tax accountant or attorney.
Many people ask when they receive a large SSDI lump sum for a retroactive period (that is, for years prior to the current tax year) whether they should count half of the amount in calculating this year's taxes. If including half of your retroactive payment will result in some of your benefits being taxable, you may choose to take a special election under the tax laws that allows you to treat the "earlier year" portion of your lump sum as though it were received in the earlier tax years. In most cases, this will reduce or eliminate your tax liability. If you think this situation applies to you, consult a tax professional or request IRS publication No. 915.
The rules governing tax liability for Social Security disability benefits
can be extremely complex. This summary provides only general information.
For more detailed answers to your questions, consult a qualified tax advisor.