While it’s true that many people who receive Social Security Disability benefits do not pay taxes on them, benefits are still subject to tax in some cases. They can be taxed on both the state and federal levels, and both current and back benefits can incur taxes depending on the circumstances. This guide explains how taxation works and what you can expect. 

Income Levels for State & Federal Taxes

Some people receive benefits along with other forms of income. In other cases, a person may receive benefits while their spouse earns an income. In both cases, exceeding a certain income level means your benefits may be subject to taxation on a federal level. The first step is to understand the income levels.

For single people or people married filing separately, add together half of your benefits and all other forms of income. If the number exceeds $25,000, a portion of the benefits will be taxed. For married couples filing jointly, the income limit for taxation is $32,000. When it comes to taxation on the state level, in Nebraska, benefits are taxed depending on the same criteria as above. 

How Back Payments Are Taxed

You won’t receive benefits until your application is approved. At that point, you may receive back payments to cover the period from when you first submitted your application until it was approved. A lump-sum payment can increase your income, which will bump you into a higher tax bracket. 

To prevent this from happening, you’re allowed to claim the lump-sum payment on previous years' tax returns. By spreading the influx of income over a few years, you’ll remain within the same tax bracket and won’t need to worry about an increase in your tax rate. 

If you have questions about your benefits, are confused by the application process, or are unsure of why your application was denied, Disability Claim Consultants can help provide answers. These certified representatives assist residents throughout Omaha in navigating the disability claims process. Along with evaluating your claim, they can also help you respond to denials, prove your disability, and document a chronic pain disorder most effectively. All help is personalized to the client’s needs, and you’ll receive guidance through every step of the process for the best possible outcome. Please call (402) 422-1000 to discuss your application or visit the website for more frequently asked questions.