Most people on SSDI pay no federal income tax on their benefits

Whether you owe federal income tax on your SSDI payments depends on your total income for the year, not on receiving disability benefits alone. If SSDI is your only income source, you almost certainly owe nothing. If you have other income—wages, self-employment earnings, interest, pensions, or rental income—some of your SSDI may become taxable.

The IRS uses a formula called "combined income" to decide how much of your benefit is subject to tax. Combined income is half your SSDI benefit plus all your other income. The threshold where taxation begins is $25,000 for a single filer and $32,000 for married couples filing jointly. These thresholds have not changed since 1984 and do not adjust for inflation.

If your combined income exceeds the threshold, up to 50 percent of your benefits may be taxable, or up to 85 percent if your combined income is very high. You will not owe tax on more than 85 percent of your benefits, no matter how much other income you have.

Key Takeaways

  • SSDI recipients with no other income owe no federal income tax on their benefits.
  • Combined income—half your SSDI plus all other income—determines whether any benefits are taxable; the threshold is $25,000 for single filers.
  • Up to 50 percent of your benefits become taxable if you cross the threshold; up to 85 percent if combined income is substantially higher.
  • You may owe state income tax on SSDI in some states, even if you owe nothing federally.

How the IRS calculates combined income

The IRS defines combined income as the sum of your adjusted gross income (AGI), nontaxable interest, and half your SSDI benefit. This is not the same as your total income.

Start with your adjusted gross income from your tax return. Add any tax-exempt interest you received (such as from municipal bonds). Then add half of your SSDI benefit amount for the year. That total is your combined income.

For example: you received $12,000 in SSDI and $18,000 in wages. Your combined income is $18,000 (wages) plus $6,000 (half of $12,000 SSDI) = $24,000. Since $24,000 is below the $25,000 threshold for a single filer, none of your SSDI is taxable.

If instead you received $12,000 in SSDI and $20,000 in wages, your combined income is $26,000. You are $1,000 over the threshold. The IRS then uses a second calculation to determine how much of your benefit is actually taxable—it is not automatic that all the overage becomes taxable.

When 50 percent of benefits becomes taxable

If your combined income is between the threshold ($25,000 single / $32,000 married) and $34,000 single ($44,000 married), up to 50 percent of your SSDI may be taxable.

The IRS does not tax the entire amount over the threshold. Instead, it taxes the lesser of two amounts: either half the amount your combined income exceeds the threshold, or half your total SSDI benefit for the year. Whichever is smaller is the amount that becomes taxable.

Using the earlier example: combined income of $26,000, threshold of $25,000. The overage is $1,000. Half of $1,000 is $500. Half of your $12,000 SSDI benefit is $6,000. The lesser amount is $500, so $500 of your SSDI is taxable.

When up to 85 percent of benefits becomes taxable

If your combined income exceeds $34,000 (single) or $44,000 (married), a second tier of taxation applies. Up to 85 percent of your SSDI may become taxable.

This calculation is more complex. The IRS taxes the lesser of two amounts: either 85 percent of your total SSDI benefit, or the sum of (a) 85 percent of the amount your combined income exceeds $34,000 (or $44,000 if married), plus (b) any amount already taxed under the 50 percent rule.

In practice, this means high-income SSDI recipients can have up to 85 percent of their benefits subject to federal income tax. The remaining 15 percent is never taxable, regardless of income.

State income tax on SSDI

Federal income tax rules do not explore to state taxes. Some states tax SSDI benefits; others do not. A few states follow the federal formula; most that tax SSDI do so at their own rates.

States that do not tax SSDI include Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Other states have their own rules—some tax all SSDI, some tax only the portion that would be taxable federally, and some have income thresholds different from the federal ones.

Check your state's tax agency website or ask a tax preparer about your state's specific rules. If you live in a state that taxes SSDI, you may owe state income tax even if you owe nothing federally.

Reporting SSDI on your tax return

The Social Security Administration sends you a Form SSA-1099-SM each January showing the total SSDI you received in the previous year. Use this form to report your benefits on your federal tax return.

You report SSDI on Form 1040 (the main federal income tax return). The amount goes on the line for Social Security benefits. If you use tax software, it will prompt you to enter this amount and will calculate whether any is taxable based on your other income.

If you are unsure whether you must file a return, use the IRS's interactive tax assistant tool on irs.gov, or contact a tax preparer. Filing when you do not owe can sometimes result in a refund if taxes were withheld from other income.

What happens if you do not report SSDI income

The Social Security Administration reports all SSDI payments to the IRS. If you receive a Form SSA-1099-SM and do not report the income on your tax return, the IRS will notice the discrepancy.

Failing to report can result in penalties, interest on unpaid taxes, and in some cases, an audit. If you believe you made an error on a prior return, you can file an amended return using Form 1040-X. The sooner you correct it, the lower the penalties are likely to be.

If you cannot afford to pay taxes owed on SSDI, the IRS offers payment plans and hardship relief options. Contact the IRS directly or work with a tax professional to explore what may be available.

Frequently Asked Questions

Can I reduce my taxes by not cashing my SSDI check?

No. The IRS counts SSDI as income in the year you are may have access to to it, whether or not you actually receive the payment. If you have a representative payee or your benefits are held in a representative account, the income still counts toward your combined income for tax purposes.

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

No. If SSDI is your sole income source and you have no other income, you are not required to file a federal income tax return. However, filing may be worthwhile if taxes were withheld from other income during the year, because you could receive a refund.

What if I work part-time while receiving SSDI?

Your wages count as income for the tax calculation. Combined income is your wages plus half your SSDI benefit. If the total exceeds the threshold, some of your SSDI becomes taxable. You may also be subject to SSDI work incentives rules, which are separate from tax rules—consult a work incentives counselor at your state vocational rehabilitation agency.

Does my spouse's income count toward my SSDI tax threshold?

Only if you file a joint tax return. If you file separately, only your own income counts. If you file jointly, your spouse's income is included in the combined income calculation, which may cause more of your SSDI to become taxable.

Can a tax preparer help me figure out if my SSDI is taxable?

Yes. A tax preparer or CPA can review your income sources and calculate your combined income to determine how much, if any, of your SSDI is taxable. Many offer free or low-cost services to people with disabilities through community organizations.