Frequently Asked Questions about Taxes and
SSA Disability Benefit Programs
QUESTION: I have been getting services from my local Work Incentives Planning and Assistance (WIPA) project – can my CWIC help me with tax issues related to my disability benefits?
Your CWIC can offer you some very general information about certain tax issues related to SSA disability benefits, but the assistance provided will be very limited. CWICs are not qualified tax professionals and are not trained to assist with tax issues – even those related to SSA disability benefits. Your CWIC will probably refer you to either the IRS or a local tax professional if you have questions requiring a response beyond what is contained in this document.
QUESTION: Are my disability benefits taxable?
Well, that depends on which benefits you get and how much your total income is. If you receive Supplemental Security Income (SSI), you will owe no Federal or State taxes on this benefit. If you have other forms of income in addition to your SSI (such as wages) you may owe taxes on that income.
If you receive a title II disability benefit (SSDI, CDB or DWB), then you may have to pay taxes on your benefits, depending on how much your total income is. SSA reports that about one-third of their current beneficiaries do pay taxes on their benefits. Here are the situations in which taxes may be due:
· If you file a federal tax return as an “individual” and your income is more than $25,000, you have to pay taxes.
· If you file a joint return, you may have to pay taxes if you and your spouse have a combined income that is more than $32,000.
· If you are married and file a separate return, you will probably pay taxes on your benefits.
Beneficiaries who are unsure about whether or not they have to pay taxes should contact the Internal Revenue Service (IRS) or seek the services of a qualified tax professional.
QUESTION: I am getting a Federal income tax refund this year. Do I need to report this to SSA?
No, you do not need to report this no matter whether you are on SSI or a title II disability benefit.
Federal and/or State income tax refunds are specifically disregarded as a form of income by the SSI program. This is because SSI counts your gross income when it is received so your SSI check has already been adjusted without regard to any taxes withheld. However, if you retain your income tax refund and your countable resources exceed the limit ($2,000 for an individual or $3,000 for a couple) you could become ineligible for SSI and Medicaid.
NOTE: Income tax refunds are not income for SSI purposes even if the income taxes were excluded from countable income as Blind Work Expenses.
In the title II program, SSA is only interested in earned income – money you receive in exchange for work performed. Income tax returns would not be considered earned income. Since the title II program is a form of insurance which is not means-tested in any way, resources are never considered. Putting your refund in the bank would have no affect on your benefits.
QUESTION: I will be getting an Earned Income Tax Credit payment this year – is that something I need to report to SSA?
The earned income tax credit (EITC) is a special tax credit that reduces the Federal tax liability of certain low income working taxpayers. This tax credit sometimes results in a payment to the taxpayer, either as an advance from an employer or as a refund from IRS. For more detailed information about the EITC go to the IRS website at: http://www.irs.gov/individuals/article/0,,id=96466,00.html
The Earned Income Tax Credit (EITC) is not counted as income for either the SSI program or the title II disability benefits and does not need to be reported to SSA. In addition, for the SSI program, any unspent Federal tax refund or payment made by an employer related to an EITC that is received on or after 3/2/04 is excluded from resources for the 9 calendar months following the month the refund or payment is received. For more information, refer to POMS SI 01130.675 Tax Advances and Refunds Related to Earned Income Tax Credits and Child Tax Credits.
NOTE: These same rules apply to the Child Tax Credit (CTC). The child tax credit (CTC) is a special refundable Federal tax credit that is available to certain low income taxpayers with earned income. They must be parents, step-parents, grandparents or foster parents with a dependent child. This child tax credit may provide a refund to individuals even if they do not owe any tax. The CTC may result in a tax refund payment to the taxpayer from IRS beginning with tax year 2001. There is no advance payment with the CTC.
QUESTION: Is it possible for the IRS to take some of my disability benefit check if I owe money for delinquent taxes?
Yes, this is possible – but only with title II disability benefits. The SSI program does not permit garnishment, attachment or levies against payments for any reason since the assumption is that persons on SSI have very little income or resources. Effective 7/1/89, the Taxpayer's Bill of Rights (P.L. 100-647) specifically prohibits IRS levies against SSI payments.
In the title II program, the IRS may take a portion of your monthly benefit payment to recover delinquent taxes. IRC Section 6331 states that individuals and businesses with delinquent tax liabilities may be subject to a continuous 15% levy against funds owed them by the federal government (including SSA benefits) beginning in July 2000. To do this, the IRS has to file something called a “Notice of Levy” with the SSA. A Notice of Levy is continuous until the IRS tells SSA to stop levying. In processing levies, SSA is merely acting to assist IRS in its duty to collect delinquent taxes. Except for seeing that the processing requirements are met, SSA has neither the authority nor obligation to question the correctness of an IRS levy.
If a levy is received for an individual who is receiving benefits on behalf of someone else as a representative payee, it will be returned to the IRS. SSA can only levy an individual’s own benefits.
A taxpayer whose title II disability payments are subject to levy may contact the IRS to resolve the issue by paying the tax bill, entering into an installment agreement or proposing an offer in compromise. For more information about SSA’s role in processing IRS levies, refer to POMS GN 02410.100 - Internal Revenue Service (IRS) Levy.
QUESTION: Can I have taxes withheld from my Social Security Disability Benefits?
Yes, this is possible. Public Law No.103-465 amends the Internal Revenue Code (IRC) to allow individuals to request that monies be withheld from certain Federal payments to satisfy their Federal income tax liability. An amendment to Section 207 of the Act allows this withholding from title II benefits. SSA refers to this process as “Voluntary Tax Withholding” or VTW. All title II beneficiaries (adults as well as children) are eligible for VTW. However, only the beneficiary or his/her representative payee can request VTW. Voluntary Tax Withholding does NOT apply to SSI payments and there is no way to have State income taxes withheld from any SSA benefit.
QUESTION: Are there special tax deductions that people with disabilities can claim?
Yes, the IRS rules contain myriad deductions and exemptions related to disability and these would apply equally to SSI recipients and title II disability beneficiaries. There are far too many special rules for people with disabilities to describe in this document, but a helpful overview may be found in IRS Publication 907 – Tax Highlights for Persons with Disabilities. This pamphlet can be found online at: http://www.irs.gov/pub/irs-pdf/p907.pdf.
In addition to these IRS rules, many States offer additional income tax deductions and some city and county governments offer discounts on property taxes or special taxes such as fees charged for fishing or hunting licenses. Beneficiaries are encouraged to search online for State and local deductions related to disability, or to seek the assistance from a qualified tax professional.
Contributing Authors and Editors: Jim Huston, CPA (Venture Mentors, LLC) and Lucy Miller
The development of this paper was funded by the Social Security Administration under Contract Number: SS00-07-60050, Training and Technical Assistance for the Work Incentive Planning and Assistance (WIPA) Program