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Your Benefits and You

Don't Neglect Disability Income When Filing Your Tax Return

April 2001

As the tax filing deadline fast approaches, many of you may be wondering if you owe taxes on the benefits you received last year. If the only income you received during 2000 was 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), then your benefits are generally not taxable and you do not have to file a state or federal return. Needs-based "welfare" benefits, such as General Relief or CalWORKs, are also considered tax-exempt.

It is important to note, however, that if any of your 2000 income was from sources other than or in addition to those listed above, you may be required to file an income tax return.

When to Expect Tax

State Disability Insurance (SDI) benefits are taxed only if you switched from an unemployment claim to an SDI claim without first instructing unemployment to "disqualify" or terminate your claim prior to submitting your application for SDI. If unemployment transferred your claim onto SDI, SDI benefits are taxed at the same rate as unemployment benefits.

Supplemental Security Income (SSI), General Relief and CalWORKs income is never taxed, regardless of any other taxable income you earned or received during 2000.

Social Security Disability Insurance (SSDI) can be more complicated. SSDI benefits are not taxable until you receive or earn certain amounts of other taxable income in the tax year.

The formula works roughly like this: If half of 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 of your benefit may be taxed at the same rate as your other income. If half of your benefits, plus your other taxable income, equals $34,000 or more ($44,000 for married couples), 85 percent of your SSDI income is taxable.

How your long-term disability (LTD) benefit is 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, your LTD income is taxable.

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 "Medical Savings Accounts and Long-Term Care Insurance Contracts" with your 1040 tax return.

Get the Right Forms

If you find that your non-disability related income for 2000 has moved your disability benefits into a taxable category, then you will need Publication 915 from the Internal Revenue Service to file your taxes.

To order IRS publications, contact the IRS hotline at (800) 852-1040, or download the forms from the Internal Revenue Service web site, State of California tax forms can be ordered by calling (800) 852-5711. (For other state tax forms call your state tax department.)

Tax assistance is available for Los Angeles County residents who are impacted by HIV and AIDS through the HIV & AIDS Legal Services Alliance (HALSA), Low Income Tax Clinic. For an appointment, call (213) 201-1640.

Julie Cross manages 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
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