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Are Your Benefits Tax-Exempt?

February 2000

It's hard to believe but the tax season is once again upon us.

The good news is this: If your entire 1999 income came from Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), California State Disability Insurance (SDI), or from a long-term disability (LTD) policy and the premiums were paid by you (not your employer), there is a good chance that you will not owe federal or state income taxes this year!

If your 1999 income came from sources other than or in addition to those listed above, you may owe taxes.

Guidelines of Benefits

State disability benefits are only taxable if you switched from an unemployment claim to an SDI claim without first getting unemployment to close your case on the unemployment computer system. Then, SDI benefits are taxed at the same rate as unemployment benefits.

Supplemental Security Income (SSI) is never taxed, regardless of any other taxable income you earned or received during 1999.

Social Security Disability Insurance (SSDI) benefits are not taxable until you receive or earn taxable income in the tax year.

The formula works roughly like this: If half your SSDI benefits, plus your other taxable income, adds up to $25,000 or more ($32,000 for legally married couples, filing joint tax returns), then half your benefit may be taxed at the same rate as your other income. If half of your benefits, plus your other taxable income, comes to $34,000 ($44,000 for married couples) or more, then 85 percent of your SSDI income is taxable.

How your long-term disability (LTD) benefits are taxed will depend on how the benefit premium is being paid. LTD payments are not taxable if you paid the premiums yourself. If your LTD was part of your company's benefit package, and your employer paid the premium, then your LTD income is taxable.

Help in Filing Returns

Income received from the sale of a life insurance policy (viatical settlement) is generally not taxable. However, if you sold your policy, you should receive a report, 1099-LTC, on the income, and you will have to file IRS form 8853 with your 1040 tax return.

If you find that your "other" income has moved your disability benefits into a taxable category, then you will need Publication 915 from the Internal Revenue Service to file your taxes. The IRS publications order hotline is (800) 852-1040 or the forms can be retrieved from the Internet at California state tax forms can be ordered by calling (800) 852-5711.

Tax assistance is available for Los Angeles County residents who are impacted by HIV and AIDS through the HIV/AIDS Legal Services Alliance (HALSA). To be screened for an appointment, call (323) 993-1640.

Julie Cross is a public benefits coordinator in AIDS Project Los Angeles' Benefits Program. She can be reached by calling (323) 993-1475 or by e-mail at

This article has been reprinted at The Body with the permission of AIDS Project Los Angeles (APLA).

This article was provided by AIDS Project Los Angeles. It is a part of the publication Positive Living.
See Also
More on Social Security and Income Taxes