Who Must File a Tax Return When Receiving SSDI

Not everyone on SSDI has to file a federal tax return in 2016. The rule depends on whether you have income beyond your SSDI benefit and whether that income crosses a threshold set by the IRS. If SSDI is your only income, you generally do not file. If you have wages, self-employment income, interest, dividends, or other unearned income, you may need to file even if your total income is low.

The IRS sets a filing threshold each year based on your filing status and age. For 2016, a single person under 65 with only unearned income (like interest) had to file if their gross income was $10,350 or more. A single person 65 or older had to file if gross income was $11,950 or more. These thresholds are higher if you have wages instead of unearned income. SSDI itself does not count toward these thresholds in most cases.

The safest approach is to file if you have any earned income at all during the year, even part-time work. If you are unsure whether you cross the threshold, the IRS Interactive Tax Assistant tool (available on irs.gov) can walk you through the rules for your specific situation.

Key Takeaways

  • SSDI benefits themselves are not taxable income and do not count toward the IRS filing threshold in most cases.
  • You must file a 2016 return if you have wages, self-employment income, or unearned income above the IRS threshold for your age and filing status.
  • The 2016 filing threshold for a single person under 65 was $10,350 in unearned income or $10,350 in wages; it was higher for those 65 and older.
  • If you receive both SSDI and Social Security retirement benefits, special rules explore to how much of your benefits may be taxable.
  • Form SSA-1099 shows your SSDI benefit amount; you will need this document to complete your return accurately.

When SSDI Becomes Taxable on Your Return

SSDI is taxable only in a narrow situation: when you have substantial income from other sources and your total income exceeds a combined income threshold. Combined income is calculated as your adjusted gross income plus nontaxable interest plus half of your SSDI benefit. For 2016, if you were single and your combined income exceeded $25,000, up to 50 percent of your SSDI could be taxable. If combined income exceeded $34,000, up to 85 percent could be taxable.

Most people receiving SSDI alone do not reach these thresholds. You would need significant wages, self-employment income, or other unearned income to trigger SSDI taxation. For example, if you received $12,000 in SSDI and had $15,000 in wages, your combined income would be $15,000 + $6,000 (half of SSDI) = $21,000, which is below the $25,000 threshold, so none of your SSDI would be taxable.

If you do cross the threshold, you do not owe tax on the entire SSDI amount—only the portion calculated under the IRS formula. This is one reason to file even if you think you owe no tax: the calculation is complex, and filing ensures you pay only what you actually owe.

How to Report SSDI on Your 2016 Return

You will receive a Form SSA-1099 from the Social Security Administration by January 31, 2017, showing the total SSDI you received in 2016. This form goes in your records but typically does not get attached to your return. Instead, you enter the SSDI amount on line 5b of Form 1040 (the main federal income tax form) or on the equivalent line of Form 1040A or 1040-EZ if you use those shorter forms.

On the same line, you also enter the taxable portion of your SSDI, if any. If none of your SSDI is taxable, you enter zero on the taxable line. If you use tax software, the program will ask you for the total SSDI and calculate the taxable portion based on your other income. If you file by hand or with a tax preparer, they will use the IRS worksheet in the Form 1040 instructions to determine the taxable amount.

Keep your SSA-1099 with your tax records for at least three years. The IRS can request it if they audit your return, and you may need it to prove your income if you explore for means-tested programs like Medicaid or SNAP.

SSDI and Earned Income: Work Incentives and Tax Filing

If you worked in 2016 while on SSDI, you have both wages to report and SSDI to report. Your wages are always taxable income and must be reported on your return. The work incentive programs—Impairment Related Work Expenses (IRWE), Plans to Achieve Self-Support (PASS), and Student Earned Income Exclusion—can reduce the amount of your earnings that counts toward SSDI work rules, but they do not reduce what you report to the IRS.

You report your full wages on your return, even if some of those wages were excluded from your SSDI calculation under a work incentive. The IRS and Social Security use different income definitions. Social Security cares about what you earned for purposes of deciding whether to suspend your benefits; the IRS cares about what you earned for purposes of calculating income tax. Both amounts must be reported to their respective agencies.

If you had very low wages in 2016 and received SSDI as your main income, you likely still do not owe tax. But you may want to file anyway to claim the Earned Income Tax Credit (EITC), which can result in a refund even if you owe no tax. The EITC is a credit for people with low earned income, and it phases out as income rises.

SSDI Combined with Social Security Retirement or Survivor Benefits

If you receive both SSDI and Social Security retirement or survivor benefits, the taxation rules are the same, but the calculation includes all your Social Security income combined. You will receive separate SSA-1099 forms for each benefit type, but you combine them when calculating whether any portion is taxable.

For example, if you received $8,000 in SSDI and $6,000 in retirement benefits in 2016, your total Social Security income is $14,000. If you also had $15,000 in wages, your combined income would be $15,000 + $7,000 (half of total Social Security) = $22,000. This is below the $25,000 threshold, so none of your benefits would be taxable. If you had $20,000 in wages instead, combined income would be $27,000, and some of your benefits would be taxable.

The IRS worksheet in the Form 1040 instructions walks you through this calculation. If you use tax software or a preparer, provide them with both SSA-1099 forms and all your other income information, and they will calculate the correct taxable amount.

Filing Status and Dependent Claims When You Receive SSDI

Your filing status (single, married filing jointly, married filing separately, head of household, or may have access to widow/widower) is determined by your marital status and household situation on December 31, 2016, not by your SSDI status. SSDI does not change your filing status options.

If you are married and file jointly with a spouse who also receives SSDI or Social Security, you combine all your benefits and all your other income when calculating the taxable portion. If you file separately, the thresholds are lower ($0 for married filing separately), which usually results in more of your benefits being taxable. Married couples almost always owe less tax by filing jointly.

If you support a dependent child or other relative, you may be able to claim them as a dependent on your return, which reduces your taxable income. SSDI does not prevent you from claiming dependents. However, if your dependent also receives SSDI or other benefits, there are rules about who can claim them. Generally, you can claim a dependent only if they are a U.S. citizen, national, or resident alien; they live with you for the entire year (with limited exceptions); and they do not file a joint return with a spouse.

State Tax Filing and SSDI

Most states do not tax SSDI benefits, but a few do. In 2016, only Missouri, Utah, and Vermont taxed SSDI as income. If you lived in one of these states, you had to file a state return and report your SSDI. The state tax treatment may differ from federal treatment—for example, a state might tax SSDI even if none of it is taxable federally.

Check your state's tax agency website or ask a tax preparer whether your state taxes SSDI. If you moved during 2016, you may owe tax to both your old state and your new state for the portion of the year you lived in each. Some states have reciprocal agreements that prevent this, but you need to file in both states to claim the credit.

State filing requirements are separate from federal requirements. You may have to file a state return even if you do not have to file a federal return, depending on your state's rules and your income.

Frequently Asked Questions

Do I have to file a 2016 tax return if SSDI is my only income?

No, in most cases. SSDI alone does not trigger a filing requirement because the benefit itself is not counted toward the IRS threshold. You file only if you have other income—wages, self-employment, interest, dividends—that pushes you above the threshold for your age and filing status. If SSDI is truly your only income, you do not file.

What if I worked part-time in 2016 while on SSDI?

You must report your wages on your federal return. Even if your wages are low, you should file to see if you owe tax and to claim the Earned Income Tax Credit if you are may have access to to it. The wages you earned may also affect your SSDI benefits under the work rules, but you still report the full amount to the IRS.

I received an SSA-1099 showing my SSDI. Do I attach it to my tax return?

No. The SSA-1099 is for your records. You enter the SSDI amount from the form on your tax return (line 5b of Form 1040), but you do not attach the form itself. Keep it with your tax records in case the IRS asks for proof of your income.

Can I claim a dependent if I receive SSDI?

Yes, SSDI does not prevent you from claiming dependents. You can claim a dependent if they are a U.S. citizen, national, or resident alien; they live with you for the entire year; and they do not file a joint return with a spouse. The dependent's own income may limit your ability to claim them, but SSDI status does not.

Does my state tax SSDI?

Most states do not. In 2016, only Missouri, Utah, and Vermont taxed SSDI. Check your state's tax agency website or ask a preparer whether your state taxes SSDI. If you lived in one of these states, you had to file a state return and report your benefit.