Allsup Examines Impact of Social Security Taxes on Disabled and their Families

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As Missouri becomes the latest state to broaden tax breaks on income from Social Security disability benefits, Allsup Inc. looks at the nationwide importance of tax relief to people with disabilities.

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The tax landscape becomes increasingly complex for anyone with disabilities

Another state has moved to reduce the tax burden on Americans with disabilities, but stopped short of totally abandoning the list of 15 states that still tax income from Social Security Disability Insurance.

Missouri Governor Matt Blunt signed into law last week legislation that raises the threshold for what disabled residents in that state get to keep in their own pockets. The result will be that over 200,000 disabled Missouri taxpayers and their dependents could benefit from the state's decision to abolish taxes on most Social Security disability benefits, according to Allsup Inc., the country's leading Social Security disability representation company.

"The tax landscape becomes increasingly complex for anyone with disabilities," said Ron Buerges, executive vice president of Allsup Inc. "They are dealing with a number of life-altering issues and it's important that they know when there is an opportunity to take advantage of financial breaks because they and their families are so often under significant financial pressures."

Under the new Missouri law, disabled individuals of any age will no longer pay state income tax on their Social Security Disability Insurance (SSDI) benefits if their income does not exceed $85,000, or $100,000 for married couples. Under the previous law, the tax exemption was only for those whose income, minus one-half of the Social Security disability benefit, was below $25,000, or $32,000 for a married couple.

"When people become disabled, they face an uncertain financial future, and taxing their Social Security disability benefits simply adds to the financial hardship," said Buerges. "Missouri lawmakers, like those in most other states, have recognized this and now are allowing disabled residents to keep more of the Social Security Disability Insurance benefit they deserve - and have paid for during their years as working taxpayers contributing to FICA taxes."

In a state-by-state comparison of state tax treatments of Social Security disability income, Allsup notes Missouri is one of 15 states that tax Social Security Disability Insurance income. However, the number of states taxing Social Security disability benefits will dwindle further as Wisconsin exempts disability benefits from its state tax in 2008 and Iowa completes its phase out of taxing those benefits in 2014.

In Missouri, disabled residents will need to wait before realizing the full value of the exemption. The new law calls for a phased approach, with 20 percent of the benefit being exempt for 2007. This will increase to a 100 percent exemption by 2012 for those with income of less than $85,000, or less than $100,000 for married couples.

Those earning more will only be taxed on the amount of Social Security Disability Insurance benefits that exceeds these income thresholds. For example, a disabled person with income of $90,000 would pay taxes on $5,000 of his or her Social Security Disability Insurance income, and an individual earning $30,000 would not be required to pay taxes on any of the benefit.

Federal Tax Rules Add to Complexity
On the federal level, Social Security Disability Insurance income has added tax consequences. Up to 50 percent of it is generally subject to federal income tax. However, as much as 85 percent of a person's disability income can be taxed if the total of one-half of the benefit and all other earned and investment income is more than $32,000 for a married couple filing jointly, or $25,000 for an individual or someone who is married filing separately but who lived with a spouse at any time during the year (IRS Bulletin 915).

According to Allsup, the average Social Security Disability Insurance payment is less than $1,000 per month. About 7 million disabled individuals now receive Social Security disability benefits, with that number increasing as baby boomers continue to age.

About Allsup
Allsup Inc. is the premier Social Security Disability Insurance representation company in the United States and has been serving individuals with disabilities nationwide since 1984. Today, the company has more than 425 professionals focused on helping individuals and their families gain the financial and health benefits they deserve. For more information visit Allsup's Web site at http://www.allsup.com.

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Mark Sutherland
Allsup Inc.
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