For people who suffer from a physical or mental impairment, their monthly Social Security benefits check could be their only form of income. However, is it considered income for tax purposes? The Social Security Administration (SSA) outlines what is considered earned income for tax purposes. Social Security benefits are unearned income, which is typically not taxable income. However, understanding the difference between earned and unearned income is important in understanding how your benefits could impact your taxes. Below, Ken Kieklak, a skilled Fayetteville disability lawyer, looks at how disability checks are defined for tax purposes.
Social Security Disability and Earned or Unearned Income in Arkansas
Earned income is not difficult to understand. It includes any money you earn from working, whether for an employer or yourself. Earned income would consist of wages, salaries, commissions, and tips. There are also some less apparent sources of earned income, including net earnings or union strike benefits. Nearly all earned income, with a few notable exceptions, is taxable.
Social Security Disability benefits are considered unearned income. Unearned income includes nearly all money you receive that does not come from working. Other examples of unearned income include retirement benefits, interest and dividends, alimony, unemployment, and child support.
When completing your yearly tax return, you are required to report both your earned and unearned income. Our Arkansas disability benefits attorney will help you understand how your benefits affect your income tax filing.
Social Security Disability Insurance (SSDI) and Taxes
The SSA administers two separate programs that provide benefits to people with physical and mental impairments. How your benefits could impact your taxes depends on the type of benefits you are receiving.
SSDI is a financial safety net designed for individuals who have been working but suffer a disability that hampers their ability to work or earn a living. To be eligible for SSDI, a person must have a qualifying disability and be unable to engage in substantial gainful activity (SGA). Our experienced Arkansas disability benefits appeals attorney will be able to help you determine if your meet each requirement.
SSDI is not based on your financial resources or assets, but rather on your ability to work. While your personal income is part of the determination, your spouse’s income or other household income is not considered. This means someone receiving SSDI could still own valuable assets and their household could have taxable income.
Therefore, even though SSDI benefits are not considered earned income, they could still be taxed depending on your household income. If you are an indivudal, and your household income is over $25,000, you will be required to pay income taxes on your Social Security benefits. For a married couple that files jointly, the threshold is $32,000. If your total income is below these thresholds, you will not be required to pay tax on your benefits.
The amount your Social Security Disability benefits are taxed will depend on your total income. For example, if your yearly individual income is $25,000 to $34,000, fifty percent of your benefits are subject to taxation. If you file jointly, then the total income range increases to $32,000 to $44,000.
For people earning more than $34,000 or $44,000 as a joint couple, eighty-five percent of their Social Security Disability benefits are taxable.
To illustrate this through an example, imagine you file as an individual and report $50,000 of income on your federal tax return. Part of your total income is $1,500 in monthly Social Security benefits. You would be required to pay taxes on eighty-five percent of your annual $18,000 in benefits. Therefore, $15,300 would be taxable. No matter how much income you report, no one receiving benefits pays taxes on more than eighty-five percent. Our Sebastian County Social Security Disability attorney could help you in determining how your SSDI benefits will impact your taxable income.
Another important thing to understand is if you have a child receiving Social Security benefits, the payments are not included in your taxable income. A child’s benefits are only taxed if the child receives enough other income to be required to file a tax return individually and surpasses the individual threshold.
Supplemental Security Income (SSI) and Taxes
In addition to SSDI, the SSA offers SSI benefits to individuals who qualify. Unlike SSDI, SSI provides monthly benefits based on a physical or mental impairment and a limited amount of resources and income. To establish that a person qualifies for SSI, our Johnson, AR Social Security Disability attorney will have to demonstrate not only that the person has a qualifying disability but that they also meet a very stringent income and resources requirement.
If you are applying for benefits individually, your resources cannot exceed $2,000. If married, the amount increases to $3,000. According to the SSA, resources include cash, savings, life insurance policies, vehicles, contributions, and any property or asset that could be converted to money for shelter and food. This wide range also includes household income. Therefore, while the taxable thresholds remain, if you qualify for SSI, your total income will be below the taxable amounts. Our knowledgeable Arkansas Social Security Disability lawyers will thoroughly review your assets, personal property, and any sources of income to determine if you qualify for SSI benefits.
Contact Our Arkansas Social Security Disability Attorney to Understand the Tax Implications of Your Benefits
Applying for and understanding Social Security benefits often feels as if you are stumbling through a dark maze. Ken Keiklak, Attorney at Law, has been helping shine a light on the process for decades. Our dedicated lawyers and staff are available to answer your questions regarding the application process and tax consequences associated with disability benefits. Call our experienced Arkansas Social Security Disability attorney at (479) 316-0438 to schedule a free consultation.