Most people on SSDI do not report it as income on their federal tax return

Social Security Disability Insurance (SSDI) payments are not taxable income for most recipients. This means you typically do not include them on your federal tax return at all, and you do not owe federal income tax on the money you receive from SSDI each month.

However, there is one situation where SSDI becomes taxable: if you have other income sources that push your total income above a certain threshold. The IRS calls this "combined income," and it includes wages, interest, dividends, and other types of earnings added together with half of your SSDI benefit. If that combined total exceeds $25,000 (or $32,000 if you are married filing jointly), then a portion of your SSDI becomes taxable.

State taxes work differently. Most states do not tax SSDI at all, but a few do. You will need to check your specific state's rules, because they vary widely.

Key Takeaways

  • SSDI payments are not taxable federal income for most recipients and do not need to be reported on your tax return.
  • If your combined income (other earnings plus half your SSDI) exceeds $25,000 ($32,000 if married filing jointly), a portion of your SSDI becomes taxable.
  • You will receive a Form SSA-1099-SM each January showing your annual SSDI payments, which you may need to reference even if you do not report the income.
  • A handful of states tax SSDI, so you must check your state's tax rules separately from federal rules.
  • If you work while on SSDI, your wages are always taxable income and must be reported, even if your SSDI itself is not.

When SSDI becomes taxable income

The IRS uses a formula to determine whether any of your SSDI is taxable. First, calculate your combined income: take all your income from sources other than SSDI (wages, self-employment income, interest, dividends, pensions, and so on), then add half of your annual SSDI benefit amount.

If that combined income is less than $25,000 (or $32,000 if you file jointly with a spouse), your SSDI is not taxable and you do not report it. If your combined income exceeds those thresholds, then up to 50 percent of your SSDI may become taxable, or in some cases up to 85 percent. The exact amount depends on how far above the threshold you go.

Example: You receive $1,200 per month in SSDI ($14,400 per year) and earn $15,000 from part-time work. Your combined income is $15,000 plus half of $14,400 ($7,200), which equals $22,200. Since $22,200 is below $25,000, none of your SSDI is taxable. But if you earned $20,000 instead, your combined income would be $27,200, which exceeds the threshold, and a portion of your SSDI would then be taxable.

The Form SSA-1099-SM you receive each year

In January of each year, the Social Security Administration sends you a Form SSA-1099-SM (or SSA-1099 for Supplemental Security Income). This form shows the total amount of SSDI you received in the previous year. You do not automatically need to attach it to your tax return, but you should keep it with your tax records.

If you do have to report a portion of your SSDI as taxable income, you will need this form to show the IRS how much you received. If your SSDI is not taxable, you still do not need to report the form on your return, but having it available makes it easier to answer questions if the IRS ever asks.

If you do not receive the form by early February, contact the Social Security Administration at 1-800-772-1213 to request a replacement copy. You can also create a my Social Security account online to view your earnings record and benefit statements.

State taxes and SSDI

Federal tax rules do not explore to state income tax. Most states follow the federal rule and do not tax SSDI at all. However, a small number of states do tax SSDI benefits, and the rules vary by state.

As of now, only a handful of states tax SSDI: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont have some form of state tax on SSDI or Social Security benefits. Even in these states, the rules differ—some tax only a portion of benefits, some have income thresholds similar to the federal rule, and some have exemptions for people over a certain age or with lower incomes.

You should check your state's tax authority website or speak with a tax preparer familiar with your state's rules. The state tax agency can tell you whether you owe state tax on your SSDI and how to report it if you do.

Reporting work income while on SSDI

If you work while receiving SSDI, your wages are always taxable income and must be reported on your federal tax return, regardless of whether your SSDI itself is taxable. This is separate from the SSDI taxation question.

Work income counts toward your combined income calculation, which is how it can push your SSDI into taxable territory. But the wages themselves are always reported. If your employer withheld federal income tax from your paychecks, you will report those wages on your return and may receive a refund if too much was withheld.

Keep in mind that working also affects your SSDI benefit amount. The Social Security Administration has rules about how much you can earn before your benefit is reduced or suspended. Those rules are separate from tax reporting, but they matter for your monthly payment.

What to do if you think your SSDI is taxable

If you have other income and you think your combined income might exceed the $25,000 or $32,000 threshold, you have a few options. You can calculate it yourself using the IRS worksheet, or you can work with a tax preparer who can do the calculation for you.

If you determine that a portion of your SSDI is taxable, you will report it on your federal tax return using Form 1040 (the main individual income tax form). The IRS provides a worksheet in the instructions to Form 1040 that walks you through the calculation step by step.

If you are unsure whether your SSDI is taxable, a tax preparer or the IRS can help you figure it out. You can also call the IRS at 1-800-829-1040 with questions about how to report your income.

Frequently Asked Questions

Do I have to file a tax return if I only receive SSDI?

No. If SSDI is your only income and it is not taxable (which it is not for most people), you do not have to file a federal tax return. However, if you have other income sources or if a portion of your SSDI is taxable, you may need to file.

What if I received SSDI for only part of the year?

Your Form SSA-1099-SM will show only the amount you received during the months you were on SSDI. Use that amount in your combined income calculation. If you started or stopped SSDI mid-year, the form will reflect the correct total.

Can I use the standard deduction if my SSDI is taxable?

Yes. If you do have to report taxable SSDI income, you can still use the standard deduction like any other taxpayer. The standard deduction amount depends on your age and filing status and changes each year.

What happens if I do not report taxable SSDI?

If you owe tax on a portion of your SSDI and do not report it, the IRS may assess penalties and interest. The Form SSA-1099-SM you receive is also sent to the IRS, so they have a record of your benefits. It is better to report the income correctly or speak with a tax preparer if you are unsure.

Does my spouse's SSDI affect whether my SSDI is taxable?

No. Each person's SSDI is calculated separately for tax purposes. However, if you file a joint tax return with your spouse, both of your combined incomes are added together to determine whether either of your benefits is taxable, using the $32,000 threshold for married filing jointly.