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Are SSD benefits subject to federal income tax?

As April 15 approaches, people in Houston who have begun receiving Social Security disability benefits during 2018 may want to know if their benefits are taxable. They may also wonder if the state of Texas will tax their disability payments. The answer can be simple, but as with many tax questions, the precise answer depends upon the taxpayer's individual income and filing status.

The state of Texas does not tax Social Security benefits. However, if certain thresholds are exceeded, a person's disability benefits may be taxed on the federal level. In calculating taxes on federal benefits such as Social Security payments or Social Security disability payments, the federal government lumps all such payments together. A portion of the Social Security benefit is exempt from taxation in recognition of the fact that the taxpayer contributed a significant amount of money during his or her working life. The actual calculation of taxes owed to the federal government begins with Box 5 on Form SSA-1099. This box states the total amount of Social Security benefits paid by the government during the year. The amount in this box must be reported on Line 5a of Form 1040.

Social Security benefits are taxable if one-half of benefits plus all of the taxpayer's other income exceeds the base amount for the taxpayer's filing status. The Internal Revenue Service has set out four filing statuses for determining the amount of benefits subject to taxation.

  • $25,000 for single persons, heads of household, or qualifying widow(ers),
  • $25,000 for persons married filing separately who lived apart from their spouses for the entire year,
  • $32,000 for taxpayers married filing jointly, or
  • $0 for persons married filing separately and who lived with their spouse at any time during the tax year.

The instructions for Form 1040 contain a form for calculating the amount of benefits that are taxable. Most persons living on SSD benefits do not have enough income to exceed the base amount for their filing status, and their benefits will escape taxation. An important caveat: Non-benefit income, such as payments from a pension plan, will be subject to taxation at normal rates.

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