The short answer: it depends on your total income

You may owe federal income tax on your SSDI benefits, but only if your combined income exceeds a certain threshold. Combined income includes your SSDI payments plus other income like wages, interest, or pensions. The threshold is low — $25,000 if you're married filing jointly, or $25,000 if you're single — which means many people who receive SSDI do end up owing tax on some portion of their benefits.

The IRS uses a formula to calculate how much of your SSDI is taxable. It's not a straightforward percentage; instead, the agency counts your SSDI against your other income to determine if you've crossed the threshold. If you have little or no other income, you likely owe no tax. If you have substantial other income, a portion of your SSDI becomes taxable.

Social Security sends you a Form SSA-1099 each January showing the total SSDI you received in the prior year. This is the figure you'll use when you file your 2017 return.

Key Takeaways

  • You owe tax on SSDI only if your combined income (SSDI plus other income) exceeds $25,000 for single filers or $25,000 for married couples filing jointly.
  • The IRS uses a two-tier formula to calculate the taxable portion, meaning you don't pay tax on all of your SSDI even if you cross the threshold.
  • Social Security mails you a Form SSA-1099 in January showing your 2017 SSDI total, which you need to file your tax return.
  • If you expect to owe tax on SSDI, you can request that Social Security withhold federal income tax from your monthly payments to avoid a large bill at tax time.

How the IRS calculates taxable SSDI

The calculation has two steps, and the IRS calls the result your provisional income. First, add half of your SSDI benefits to all your other income (wages, interest, pensions, rental income, and so on). That total is your provisional income. Then compare it to your threshold.

If your provisional income is below $25,000 (single) or $32,000 (married filing jointly), you owe no tax on SSDI. If it's above that, up to 50% of your SSDI becomes taxable — but only up to the amount that pushes you over the threshold. If your provisional income is very high, up to 85% of your SSDI can become taxable.

Example: You're single and received $12,000 in SSDI in 2017, plus $20,000 in wages. Half your SSDI is $6,000. Add that to your wages: $6,000 + $20,000 = $26,000 provisional income. You're $1,000 over the $25,000 threshold. The lesser of $1,000 or half your SSDI ($6,000) is taxable — so $1,000 of your SSDI is taxable income.

What Form SSA-1099 shows and where to find it

Social Security mails Form SSA-1099 to you by January 31 each year. It shows the total SSDI you received in the prior calendar year (in this case, 2017). The form has three boxes: Box 1 shows your gross SSDI, Box 2 shows any federal income tax already withheld, and Box 3 shows your net SSDI after withholding.

You'll need this form to complete your 2017 tax return. If you file electronically, you may be able to enter the information directly. If you file by paper, you'll attach a copy of the SSA-1099 to your return. If you don't receive the form by early February, contact Social Security at 1-800-772-1213 or visit your local Social Security office to request a replacement.

Requesting tax withholding from your SSDI payments

If you know you'll owe tax on your SSDI, you can ask Social Security to withhold federal income tax from your monthly benefit payment. This reduces the amount you receive each month but prevents a large tax bill in April. You request withholding by completing Form W-4V (Voluntary Withholding Request) and submitting it to Social Security.

You can choose to have 7%, 10%, 15%, or 22% of your benefit withheld. Social Security will show the withheld amount in Box 2 of your Form SSA-1099. When you file your 2017 return, this withholding counts as a payment toward your tax liability, just like withholding from a paycheck would.

To request withholding, read Form W-4V from the Social Security website, complete it, and mail it to your local Social Security office. You can also request withholding in person at an office or by phone at 1-800-772-1213.

State income tax on SSDI

Federal tax rules and state tax rules are separate. Most states do not tax SSDI benefits at all. However, a few states — including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont — tax SSDI under certain circumstances or for certain income levels.

If you live in one of these states, check your state's tax authority website or contact them directly to learn whether your 2017 SSDI is subject to state income tax. The rules vary by state and change year to year, so you cannot assume your SSDI is tax-free at the state level without checking.

What to do if you can't pay the tax you owe

If you file your 2017 return and discover you owe tax on SSDI but cannot pay the full amount, you have options. You can request a payment plan (called an installment agreement) from the IRS, which lets you pay in monthly installments. You can also request an offer in compromise if your financial situation makes it impossible to pay what you owe.

Contact the IRS at 1-800-829-1040 to discuss your situation. Have your tax return and Social Security information available. The IRS can explain what payment arrangements are available to you and help you set up a plan that fits your budget.

Frequently Asked Questions

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

Not necessarily. If SSDI is your only income and it's below the filing threshold for your age and filing status, you don't have to file. However, if you had federal income tax withheld from your SSDI, you should file to get a refund of that withholding.

Can I deduct my medical expenses from SSDI income?

Medical expenses are deductible only if you itemize deductions on your tax return and your total medical expenses exceed a threshold set by the IRS (7.5% of your adjusted gross income for 2017). SSDI itself is not deductible, but you may be able to deduct may have access to medical costs if you meet the threshold.

What if I received SSDI for only part of 2017?

Social Security reports only the SSDI you actually received in 2017 on your Form SSA-1099. If you started receiving benefits partway through the year, the form shows only those months' payments. Use that actual amount in your tax calculation.

Does SSDI count as income for other programs like Medicaid?

Yes. SSDI counts as income for Medicaid, SNAP, housing information, and other means-tested programs. However, the income limits and counting rules for those programs are different from tax rules, so you may still be within limits for those programs even if you owe tax on SSDI.