Is a Disability Check Considered Income By the IRS in Pennsylvania

If you have been injured or suffer from a medical impairment that limits your ability to work, you might rely on disability benefits to pay your monthly bills. If you have been receiving disability or are applying for benefits, you might wonder if your monthly payments are taxable.

The Social Security Administration (SSA) offers Pennsylvanians two benefits programs if they are disabled: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). SSDI benefits are taxable, while SSI benefits are not.

However, if your only source of income is SSDI, then it is unlikely you will have to pay either federal or state income tax on your benefits. If you have additional income, for example, your spouse works, then a portion of your benefits may be taxable by the IRS and Pennsylvania. To understand how Social Security benefits work, contact our Pennsylvania disability lawyers at Young, Marr, Mallis & Associates. Call our law offices at (215) 515-2954.

What is Disability Income in Pennsylvania

In Pennsylvania, disabled individuals could be eligible for two benefits programs: Social Security Disability Insurance and Supplemental Security Income. SSDI and SSI are government programs administered by the Social Security Administration. However, the way individuals qualify for each program is very different.

SSDI benefits are funded through payroll taxes. Only people who have worked enough years and have paid their FICA taxes are eligible for this program. The SSA uses work credits to determine if an applicant has worked a sufficient number of years. Typically, to qualify for SSDI, a person must have earned 40 work credits. An applicant also must be under the age of 65. Additionally, an applicant will have to wait at least five months before being approved for SSDI benefits. In most cases, the waiting period is longer.

SSI benefits are based on need rather than an individual’s work history. Only people with limited resources and income are eligible for SSI benefits. More specifically, an individual’s assets cannot exceed $2,000. For couples, this amount increases to $3,000. Unlike SSDI, SSI is funded through general taxes. If you qualify for SSI, you could also qualify for Medicaid.

Taxing Social Security Disability Income in Pennsylvania

Whether your disability income is taxable or not depends on the type of benefits you are receiving.

SSI benefits are not taxable. If you are receiving SSI benefits, you are not required to report it as income.

SSDI benefits, just as with any other Social Security income, must be reported on your tax returns. While it is considered taxable income, whether you must pay any income tax depends on your total income and benefits for the taxable year.

You might be required to pay income tax on your SSDI benefits if half of your Social Security benefits, excluding SSI benefits, plus your other taxable income, is greater than the base amount for your personal filing status. For instance, if you file jointly with your spouse, your SSDI benefits would be combined with your spouse’s income. It does not matter whether your spouse is receiving benefits.

Determining if You Owe Federal and State Income Tax on Disability Benefits in Pennsylvania

While SSDI benefits are taxable, whether you owe taxes depends on whether you file jointly or individually and your provisional income. Provisional income includes half of your SSDI benefits, your adjusted gross income, and any tax-exempt interest you earned over the year.

If your only source of income is SSDI, you will most likely not owe any federal income tax. However, if you are an individual with between $25,000 and $34,000 of provisional income, up to half of your SSDI benefits will be considered taxable income. For individuals with more than $34,000 of provisional income, 85% of their SSDI benefits are taxable.

If you are married, filing jointly, and have a combined income of over $32,000, 50% of your disability benefits are taxable. When the combined income exceeds $44,000, then up to 85% of your SSDI benefits are taxable. It is important to remember that the percentages relate to the amount of taxable income and not your marginal tax rate. Your disability benefits will be taxed at your normal marginal rate. For most people, this falls somewhere between 10% and 28%.

Pennsylvania is one of a small number of states that taxes Social Security disability benefits. The same figures apply when determining your state tax obligation. The experienced Philadelphia Social Security benefits lawyers at Young, Marr, Mallis & Associates are available to answer your questions or concerns regarding your benefits.

Taxation of Social Security Disability Backpay

SSDI benefits are often delayed. Therefore, if you qualify, you will likely receive a lump-sum payment for the back payments you are owed. A large lump-sum benefits payment could significantly impact your taxable income for the year in which you receive it.

Fortunately, there is a way to avoid losing a substantial part of your benefits through taxes. Under the current federal tax laws, you are allowed to apply your SSDI benefits owed from a prior year to that year’s tax returns, lowering your taxable income for the year in which you received the lump-sum payment. For example, if you were owed 18 months of disability payments and received it in one lump sum, you could amend your previous year’s return to spread the benefits income over your two returns. If you have any questions, contact our Berks County Social Security Disability attorneys.

Call Our Pennsylvania Social Security Benefits Lawyers for a Free Consultation

Social Security disability benefits provide vital financial support for many individuals and families in Pennsylvania. At Young, Marr, Mallis & Associates, our Montgomery County Social Security benefits lawyers have decades of experience assisting our clients in getting the benefits they need and deserve. If you have any questions about applying for disability benefits or your tax obligations, if you are already receiving them, call our law offices at (215) 515-2954.