Disability Tax Laws

[user17720394126]

Hello,

I have some questions since I file jointly with my spouse who is on disability and I work full time.  In the past, he had to claim 85% of his disability income, but with the new tax laws are there any changes?  

[xmasbaby0]

No, that has not changed.    If your spouse receives Social Security disability benefits, the SSA1099 must be entered on your joint tax return.   Contrary to some of the recent political hot air,  SS benefits are still taxable.

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2021 it was  $18,960.  For 2022 it was  $19,560  —  for 2023 $21,240)  For 2024, $22,320.  For 2025 it will be $23,400; 2026   $24,480

After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.  If you work as an independent contractor then you will pay self-employment tax for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2025 Form 1040

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is

Single or Head of Household      $25,000

Married Filing Jointly                  $32,000

Married Filing Separately            $0

Some additional information:  There are 9 states that tax Social Security—Colorado, Connecticut,, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont  and West Virginia These states offer varying degrees of income exemptions, but two mirror the federal tax schedule: MN and VT.

[user17720394126]

Are there any advantages to filing Married but Separately?

[xmasbaby0]

 Filing separate returns  is usually the worst way to file. 

If you were legally married at the end of 2025 your filing choices are married filing jointly or married filing separately when you prepare your 2025 return.

Married Filing Jointly is usually better, even if one spouse had little or no income. When you file a joint return, you and your spouse will get the married filing jointly standard deduction of $31,500 (+ $1600 for each spouse 65 or older)  for 2025. You are eligible for more credits including education credits, earned income credit, child and dependent care credit, and a larger income limit to receive the child tax credit. 

If you choose to file married filing separately, both spouses have to file the same way—either you both itemize or you both use standard deduction. Your tax rate will be higher than on a joint return.

 Some of the disadvantages of filing separately include: 

You cannot get earned income credit, 

You cannot get education credits or deductions for student loan interest. 

You cannot get the childcare credit

You have a lower amount of income on which to base the refundable additional child tax credit

85% of your Social Security benefits will be taxable even with no other income 

The amount you can contribute to a retirement account will be limited.

Capital loss deduction is less than if you file jointly

You cannot get the $6000 senior deduction

You cannot get the deductions for overtime or tips

 If you live in a community property state, you will be required to provide additional information regarding your spouse’s income. ( Community property states:  AZ, CA, ID, LA, NV, NM, TX, WA, WI) and your returns become very complicated.

 If  you are using online TurboTax to prepare your returns, you will need to prepare two separate returns and pay twice since with online, you get one return per fee.

https://turbotax.intuit.com/tax-tips/marriage/should-you-and-your-spouse-file-taxes-jointly-or-separ...

https://ttlc.intuit.com/turbotax-support/en-us/help-article/income/getting-married-mean-taxes/L2Rgma...

https://ttlc.intuit.com/turbotax-support/en-us/help-article/taxation/married-filing-separately-commu...

@user17720394126

[TomK2023]

First, the standard deduction for a married couple filing jointly has increased to $31,500. 

For Married Filing Jointly, the IRS still looks at your "Provisional Income" (Total Income + Tax-Exempt Interest + 50% of his SSDI).

The "One Big Beautiful Bill" added the "Senior Deduction" (Age 65+).  

If your spouse (or you) is age 65 or older (effective for 2025 and 2026), you get an additional $6,000 deduction per person (up to $12,000 for a couple) on top of your standard deduction.

This doesn't change the percentage of his disability that is "taxable," but it creates a much larger shield of tax-free income.

However, this deduction starts to disappear if your joint Adjusted Gross Income (AGI) is over $150,000.

@user17720394126