Paying taxes can be confusing since many states have their own laws and regulations surrounding tax payments. If you’re a resident of California receiving Social Security Disability Insurance (SSDI) benefits, you may wonder whether SSDI is taxable in your state.
Social Security Disability Insurance is exempt from state taxes in California. However, it may still be subject to federal taxes. This happens in the event that you make a substantial amount of income from other sources.
Read below for more details on SSDI and its tax implications for the state of California.
When Taxes Must Be Paid on Social Security Disability Insurance
If you have no other income throughout the year, generally your Social Security Disability Insurance benefits are exempt from taxation. Additionally, if you were rendered unable to work as a result of a domestic or international terrorist incident, you would not be required to pay taxes on these benefits.
On the other hand, if you do earn money while receiving SSDI benefits, the Internal Revenue Service (IRS) has set a certain income threshold at which your benefit income becomes taxable. The IRS has set the following limit specifically for this purpose:
- $25,000 for a single person, those filing as heads of their homes, eligible widows or widowers, or divorced or widowed couples who are not living together.
- $32,000 for married couples who file a joint tax return, regardless of whether one partner is eligible for Social Security benefits or not.
- Zero for married couples who continue to live jointly but choose to file their taxes individually.
When you compute your income, you must take into account your spouse’s income as well as unearned income, such as non-exempt interest and dividends. In addition, you must include fifty percent of the payments you receive for your disability.
How Much of Social Security Disability Payments Are Subject to Taxation?
If you are liable for paying taxes on your Social Security Disability Insurance benefits, you will only be required to pay income tax on a portion of the money you get rather than on the total amount of your benefits.
Depending on your income and how you choose to file your taxes, there are two different ways that your Social Security Disability Insurance benefits can be taxed.
If you are a single person filing taxes:
- If your annual income is between $25,000 and $34,000, the IRS may tax up to half of your Social Security Disability Insurance payments as income.
- If your total annual income is more than $34,000, the IRS may tax up to 85% of your SSDI benefits.
When filing a joint return as a married couple:
- If your total income for the year is between $32,000 and $44,000, the IRS may tax up to half of your SSDI benefit.
- When your income exceeds $44,000, the IRS may tax up to 85% of your SSDI benefits.
Reporting Social Security Disability Insurance Payments
If you have been receiving Social Security Disability Insurance benefits throughout the previous year, the Social Security Administration will give you a statement of your benefits in the form of an SSA-1099 in the mail each year around January.
Box 4 of the SSA-1099 displays the total amount of net Social Security Disability benefits that you received throughout the whole year.
This is the amount of benefits that you received minus the amount of benefits that you were required to repay during the applicable year. When you submit your tax return, you are required to include the amount in question in Box 5 on Line 6 of Form 1040.
Are SSDI Benefits Taxable In California?
It depends. The state of California does not impose any taxes on recipients of Social Security benefits.
The portion of your Social Security benefits that you reported as part of your federally adjusted gross income is not subject to taxation in the state of California; however, the remaining amount might be. It’s possible that the federal government will tax your Social Security benefits. Let’s take a look at the reasons why this might or might not be true for taxpayers.
According to the Federal Insurance Contributions Act (FICA) and the Self-Employed Contributions Act (SECA), taxes for Social Security are either withheld from an employee’s payroll or from a business owner’s self-employment deduction.
Each and every person who is either an employee or is self-employed needs to contribute taxes to Social Security from each paycheck that they receive. These proceeds are used to pay for the benefits of Social Security that are given to individuals.
Certain people will be subject to federal income taxes when they begin receiving Social Security benefits (often around age 62).
In most cases, this occurs when the taxpayer also earns significant income from other sources in addition to receiving social security benefits. This could include income from a self-employed job, interest, dividends from retirement accounts, or any other taxable source.
Depending on your income and the way you file your taxes, the Internal Revenue Service will ask you to pay taxes on a percentage of the benefits you receive from Social Security Disability.
Is SSDI Backpay Taxable?
The application procedure for Social Security can take quite a while; therefore, you may be eligible to receive back payments to compensate for the period you spent waiting for approval of your claim.
Back payments for disability benefits are often given to the recipient in a single sum. Because of this, the recipient’s annual income may rise, which results in a greater financial obligation to pay taxes.
You can get around this by filing revised tax returns for the preceding years that were covered by the back payment benefits and then reporting only the amount that is left over for the current tax year.
Conclusion
If you’re a resident of California, you do not have to worry about how much tax to pay on your Social Security Disability insurance. The earned income guide above will give you an idea of the tax implications of your income.
