If you're like many Americans, you may have put some thought into how you'd like your career to end -- perhaps even setting a target retirement date based on a milestone age or your ability to qualify for a pension. Few people anticipate a premature end to their career due to disability. However, this is the reality for the nearly 9 million Americans currently receiving monthly Social Security disability (SSD) or Supplemental Security Income (SSI) payments. If you've recently suffered an injury that you fear will leave you unable to work, you may be wondering about your options going forward. Read on to learn more about long-term disability (LTD) insurance and some other potential benefits to which you may be entitled.
What is the difference between LTD, SSD, and SSI?
All three of these acronyms involve programs that make regular monthly payments to individuals who are unable to work due to disability, but the funding source and implementation of these programs can vary widely.
LTD is a type of private insurance, often funded by your employer, designed to provide you with a certain percentage of your pre-injury income for a specified period of time. These policies are often used in conjunction with short-term disability (STD) policies to help employees bridge the financial gap between working and qualifying for a more permanent type of disability income.
Both SSD and SSI are programs administered by the Social Security Administration. SSD is similar to Social Security retirement in that the amount of benefits you'll receive is based on your earnings during your working life. The longer your work history and the higher your salary (on which you paid Social Security taxes), the more you'll receive in SSD benefits.
SSI helps cover those whose work histories render them ineligible for SSD and who have no other source of income. Because these disability benefits are available only for those who have less than $2,000 in available assets (or $3,000 if married), the average amount received through these benefits is usually much lower than you'd receive through LTD or SSD.
In order to qualify for either SSD or SSI, you'll need to be unable to perform what's often deemed as "substantial gainful activity" -- which means not only that you can't do your former job, but that you can't do any job for which you're qualified. The qualification process for LTD is similar, but the interpretation of specific provisions depends on your individual policy. If you're unsure about the benefits to which you may be entitled, you'll want to consult an attorney who can help parse through your plan materials and help you create the best case.
Will you need to set aside money for taxes on your LTD, SSD, or SSI benefits?
If you're beginning your disability journey by receiving LTD benefits, you may be wondering whether you'll need to set aside a portion of your monthly check to pay taxes. Because LTD is designed to replace your paycheck, it's often a pre-tax deduction, which means you'll need to pay your regular state and federal income taxes on any funds received. However, if these premium costs are taken from your check after taxes have been assessed, or if you've purchased an individual policy with after-tax money, you shouldn't have to pay taxes on any LTD funds you later receive.
The taxation of SSD or SSI benefits can be even more complicated. In many cases, a single person with no additional source of income won't be required to pay income taxes on this amount or even file an income tax return. However, those married to higher-earning spouses or with a higher household income may find that a portion of their SSD benefits are subject to income tax. If you're concerned about the tax treatment of your disability funds, you may want to make a phone call to your attorney to determine whether there are any legal or financial vehicles that can help you shelter these funds. Contact a firm like Iler and Iler for more information.
Share20 January 2016
Too many single people assume they don't need to plan their estate. My brother fell into this category, and his unexpected passing left our entire family struggling to deal with his home, belongings, and financial accounts. It took nearly three years for the courts to set up a deal because he left no paperwork detailing how he wanted his estate divided. The situation immediately convinced me to work on my own estate, even though I'm still in my early 30's and don't have children or a spouse to worry about. Since it's a little harder to pick beneficiaries and estate managers when you're single, I collected the resources I used for making my own decisions and decided to publish them here on my blog. Use these resources before talking to an estate planning attorney so you're prepared for making hard decisions.