Are Taxes Taken Out of Disability Benefits?

by Jul 3, 2017

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Are taxes taken out of my disability benefits?

If you receive Social Security Disability Insurance (SSDI) and also earn other income, you might have to pay taxes on your benefits. As of 2017, if you are a single person with more than $25,000 in total income or a married person with more than $32,000 in combined total income, a portion of your benefits are taxable. It is up to you whether to have them withheld from your check or pay them yourself.

What does it mean if my taxes are withheld?

You can elect to allow the Social Security Administration (SSA) to withhold 7%, 10%, 15%, or 25% of your monthly disability check for the IRS. Even if you calculate that your effective tax liability falls somewhere in the middle of these four numbers, you must choose one of these four. To request to have taxes withheld, you must file IRS Form W-4V.

The benefit of having your taxes withheld is it absolves you of the responsibility of paying them yourself each year in April. There is no risk of getting a tax bill and not having the money available to pay it. Moreover, if you elect to have more than your effective tax liability withheld, you can receive a nice windfall each year at tax time.

The downfall of voluntary tax withholding is you will not have this money in your possession throughout the year.

It is up to you whether the safety and convenience of having taxes withheld outweighs the benefits of keeping your money throughout the year. A qualified disability attorney can examine your situation and advise you of the best way to go.

Can I pay these taxes myself?

If you do not fill out Form W-4V and specifically ask to have taxes withheld, they will not be. You are responsible for paying them yourself.

Every January, you will receive IRS Form SSA-1099 in the mail. This is your Social Security Benefit Statement. It shows your total earnings in disability benefits for the previous year. When you file your federal income tax return, you must list the amount from your SSA-1099 as income. As mentioned above, your total income from all sources determines if any portion of your benefits are taxable.

If you wish to pay your taxes yourself but do not want to bear the risk of coming up short at the end of the year, you have a third option. You can make quarterly estimated payments to the IRS. If you come up a little bit short, you pay the difference at tax time. If you overpay, you receive a tax refund.

Our lawyers can help you understand your tax obligations.

The disability lawyers at the Disability Advantage Group can answer your questions and help you devise the best tax plan for your benefits. Call 865-566-0800 today for a free consultation.