If My Only Income Is From Social Security Disability Benefits Do I Have to File a Tax Return?

••• Jupiterimages/Photos.com/Getty Images

Social Security is a government program that pays American workers not only retirement benefits, but also benefits associated with disabilities. These benefits are paid in installments that are received throughout the tax year and are typically used by the disabled for living expenses. Because disabled people may no longer be able to work, this benefit may be their only source of income. When the time comes to file taxes, this can raise questions over what should be filed, and if a return is necessary at all.

Tax Filing Requirement

If you are disabled and receive benefits from Social Security, you may not need to file a tax return. It is not completely necessary to file a return if you do not have any sources of taxable income. But the chances are good that you will have some reason to file a tax return no matter what.

If you sold your home, bought a home, made excess contributions to a retirement fund or are entitled to an earned income tax credit, you have to file a tax return. The reasons are so varied you should consider filing a tax return even without taxable income and carefully explore your financial situation in the past year before making any further decisions.

Filing for Tax Exemptions

Tax exemptions occur on income that is not taxable – and this is the key point in filing a return. If Social Security benefits are absolutely your only income – counting investments, interest, gambling and any other form of income that the IRS requires taxes on – then you probably do not have to pay taxes on your income at all. If you have had no other pertinent financial activity for the year, then you may be able to avoid filing a tax return at all.

Income Taxes for Income Thresholds

You may have to file a tax return and pay taxes on Social Security disability benefits if you make enough income. According to NOLO, if you are single and your total combined income for the year is greater than $25,000 dollars, you will need to file and pay income tax. If you file a joint return, your limit is raised to $32,000 before you have to pay Social Security taxes.

To determine whether your benefits are taxable, download Publication 554 from the IRS's website and fill out Worksheet 2-B. It is important to note that even at the maximum amount, you will not be taxed on more than 85 percent of your total Social Security payments for the year. That's the exception, however, as most filers won't be taxed on more than 50 percent of their benefits.

Social Security Vs. Disability Insurance

Social Security disability should not be confused with disability insurance. Disability insurance is a private option not funded by the government, but paid for by individuals. If you pay premiums out of income that has already been taxed, any benefits you receive from this private insurance are not taxed as income. If your premiums are paid with pre-tax money or paid by an employer, your benefits may be taxable income.

Social Security Disability Vs. SSI

It's also important that you don't confuse Social Security Disability benefits with SSI (Supplemental Security Income) benefits. SSI payments are viewed as a form of assistance for low-income individuals who are either blind, disabled or over the age of 65, and therefore, the benefits are not taxable. The Social Security Administration, however, does require recipients to provide any and all income information to their office for the determination of the benefits.