Social Security Disability benefits are a vital component of both the U.S. and New Jersey economies. Those New Jersey residents who have worked long enough to earn tax credits can become eligible for SSD when they are no longer capable of maintaining substantive gainful employment. However, even those with a valid disability can still earn a reasonable income while still receiving benefits, but there will often be an income tax obligation when tax season arrives. It is important for all SSD recipients to understand what their tax requirements will be to both the state and the Internal Revenue Service in order to avoid having any tax burden.
IRS provisional income calculation
The IRS sets a maximum of $1,310 per month for individuals who receive SSD benefits. Those who earn over this amount typically must forfeit their SSD monthly allowance. For those individuals earning less than the cap, the IRS uses the total adjusted gross income plus half of the SSD income plus any earnings from investments such as a 401(k) retirement account. No tax obligation will apply on SSD income if the total is under $25,000.
New Jersey state income tax obligations
While SSD income is not used to calculate tax obligations to the state of New Jersey, there is still a tax requirement for those earning over $20,000. All SSD recipients who earn below the $1,310 monthly limit will also be exempt from paying taxes at the state level because the annual total is less than the minimum taxable income in the state. However, those who are in jeopardy of losing their SSD benefits due to earning too much substantive gainful employment income could also lose benefits and pay income taxes to both the state and the IRS.
It is vital for all SSD recipients to understand their earning limits if they are still capable of maintaining some type of employment. The benefits of the program are too important to lose, and assessing income limits annually well ahead of time is always the best decision.