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Many assume Social Security benefits are tax-free, but that’s not always true. Depending on your total income and filing status, some of your Social Security Disability Insurance (SSDI) benefits may be taxable at the federal level. Supplemental Security Income (SSI), however, is never taxed. Understanding how Social Security benefits are taxed can help you avoid unexpected financial burdens and plan for the future.
State-level taxation is not a concern for individuals in El Paso and across Texas since Texas does not tax Social Security benefits. However, federal taxes may still apply, especially if you receive SSDI and have other sources of income. Below, we’ll break down when Social Security benefits are taxed, how to determine whether you owe taxes, and strategies to minimize your tax liability.
Are Social Security Disability Benefits Taxable?
Social Security benefits’ taxability depends on the benefits you receive and your total income.
- SSI benefits are never taxed because they are needs-based and intended for low-income individuals.
- SSDI benefits may be taxable if your total income exceeds certain IRS thresholds.
The IRS determines whether SSDI benefits are taxable by calculating combined income, which consists of:
- Adjusted Gross Income (AGI) – This includes wages, self-employment earnings, and taxable pensions.
- Non-taxable interest – Such as interest from municipal bonds.
- 50% of your Social Security benefits – Half of your total SSDI payments for the year.
Some of your Social Security benefits may be subject to federal income tax if your combined income exceeds a certain amount.
Understanding the IRS Income Thresholds
Social Security benefits become taxable if your combined income exceeds the following limits:
- Single filers:
- $25,000 – Up to 50% of SSDI benefits may be taxable.
- $34,000 – Up to 85% of SSDI benefits may be taxable.
- Married filing jointly:
- $32,000 – Up to 50% of SSDI benefits may be taxable.
- $44,000 – Up to 85% of SSDI benefits may be taxable.
For many individuals in El Paso, SSDI benefits alone will not push them into the taxable range. However, if you have additional income, such as pensions, investment earnings, or part-time work, a portion of your benefits could be subject to federal taxation.
How Texas Treats Social Security Taxes
Unlike some states, Texas does not tax Social Security benefits, including SSDI and SSI. That means you won’t have to worry about state taxes on your benefits if you live in Dallas-Fort Worth or elsewhere in Texas. However, if you relocate to another state, you must check whether local taxes may apply.
While Texas is tax-friendly for retirees and disability recipients, federal tax liability can still be an issue, particularly if you have additional income streams or withdraw from taxable retirement accounts.
What If You Work While Receiving SSDI?
Returning to work while receiving SSDI can impact your benefits and tax liability. If you earn above the Substantial Gainful Activity (SGA) threshold of $1,550 per month in 2024, your SSDI benefits may be discontinued.
However, Social Security allows for a trial work period, during which you can test returning to work without losing benefits. If you continue working beyond this period, your income could affect your benefits and increase your overall taxable income.
If you’re receiving SSDI and considering part-time or full-time work, understanding tax implications and income limits can help prevent financial surprises.
Ways to Minimize Tax Liability on Social Security Benefits
While you may not be able to avoid taxes on Social Security benefits entirely, there are strategies to reduce your tax burden:
- Manage taxable income – Withdraw funds strategically from retirement accounts to stay below taxable thresholds.
- Consider Roth conversions – Unlike traditional IRA withdrawals, Roth IRA distributions are tax-free and do not count toward combined income.
- Utilize deductions and credits – Some medical expenses and tax credits may help lower taxable income.
- Delay Social Security benefits – If you have other income sources, delaying SSDI or retirement benefits may help you avoid taxation.
Understanding these strategies can help individuals in El Paso maximize their Social Security benefits while minimizing tax liability.
How a Disability Attorney Can Help
Whether you need assistance filing for SSDI or SSI, appealing a claim denial, or structuring your benefits to reduce tax liability, turn to the Law Office of Carey Thompson. As experienced disability attorneys, we can help you mitigate the impact of taxes on your disability benefits and provide strategic solutions to protect your financial future. Call today to schedule a consultation and protect your Social Security benefits from taxation.