Social Security

• Social Security disability is a program that pays benefits to disabled individuals on a temporary or permanent basis. This program is funded by taxpayers and is available to all citizens of the United States. Applicants must have qualifying disabilities that prevent individuals from doing their jobs or any other work. Disabilities must last at least a year, and workers must have also paid into Social Security while working and have earned enough credits to become eligible. However, 60 percent of initial applicants are rejected for disability coverages.
  
  

Benefits and Taxation

• Benefits paid from Social Security are subject to taxation if the household incomes of the recipients surpass the program's limits. The Social Security Administration (SSA) determines benefit payments by the work histories of the applicants. Each year, eligible workers are notified via mail of their benefits amounts if they were to become disabled. On average, the monthly disability payments from the SSA are $1,063. The IRS taxes 50 percent of disability benefits at normal income tax rates if the total incomes of individuals and married couples exceed $25,000 and $32,000, respectively. If individuals earned over $34,000 and married couples' earnings top $44,000, up to 85 percent of their benefits are considered taxable incomes.
  
  

Disability Plans from State Governments

• State governments sponsor disability programs as well. Workers in these states receive short-term disability coverages funded by payroll taxes taken from their salaries. Disabilities must have occurred outside of the workplace; injuries suffered while at work are only covered by workers compensation insurance. However, only five states provide short-term disability coverages: New York, New Jersey, Rhode Island, Hawaii and California. State disability insurance plans are funded with payroll taxes taken from the workers' salaries. Benefit payments are based on the workers' salaries and are determined differently in each state. The benefit periods, which can last several weeks to one year, also are determined by the state.
  
  

Different Taxation Rules for States

• Benefit payments from state disability insurance plans usually are not subject to taxation. This is because employees pay for their coverages through payroll taxes. One of the exceptions, however, is New Jersey's Temporary Disability Insurance program. Benefit payments from this program are considered taxable compensation for federal tax purposes, but not for state income taxes.