Most SSDI recipients pay no federal income tax on their benefits

You do not owe federal income tax on your SSDI payments unless you have other income that pushes you over a specific threshold. The IRS calls this threshold the "combined income" test. If your combined income stays below the limit, your SSDI is tax-free. If it goes above, you may owe tax on up to 85 percent of your benefits.

Combined income means your adjusted gross income plus nontaxable interest plus half of your SSDI benefits. The threshold depends on your filing status. For single filers, the limit is $25,000. For married filing jointly, it is $32,000. For married filing separately, it is $0 — meaning any SSDI at all could trigger tax if you have other income.

Most people on SSDI have little or no other income, so they never hit this threshold. But if you work part-time, receive a pension, draw from retirement accounts, or have investment income, you need to check whether you cross the line.

Key Takeaways

  • SSDI is tax-free unless your combined income (your other income plus half your SSDI) exceeds $25,000 for single filers or $32,000 for married filing jointly.
  • Combined income includes wages, self-employment income, pensions, interest, dividends, and distributions from retirement accounts, but not Supplemental Security Income (SSI).
  • If you owe tax on SSDI, you owe it on up to 85 percent of your benefits, not the full amount.
  • You report SSDI on your federal tax return using Form 1040 and Schedule 1, and the Social Security Administration sends you a Form SSA-1099 each January showing your annual benefit amount.

How to calculate whether you owe tax on SSDI

Start by adding up all your income for the year except SSDI. This includes wages from work, net self-employment income, taxable pensions, taxable IRA distributions, taxable interest, dividends, capital gains, and rental income. Do not include Supplemental Security Income (SSI), which is a separate program and never taxable.

Next, add half of your SSDI benefits to that total. This sum is your combined income. If it is below $25,000 (single) or $32,000 (married filing jointly), you owe no tax on your SSDI and you are done.

If your combined income exceeds the threshold, you may owe tax. The amount is complex because it depends on how far over the threshold you go. The IRS has a worksheet in Publication 915 that walks through the calculation. Many tax preparers use software that does this automatically. If you do your own taxes, you can read Publication 915 from the IRS website at no cost.

What income counts toward the combined income test

The combined income test includes almost all income except SSDI and SSI. Wages from employment count. So do net profits from self-employment. Taxable interest and dividends count. Capital gains count. Distributions from traditional IRAs, 401(k)s, and other retirement accounts count if they are taxable.

Nontaxable interest — such as interest from municipal bonds — also counts for the combined income test, even though it does not count as income on your tax return. This is one of the few places where the SSDI rule differs from the tax rule.

Income that does not count includes SSI, workers' compensation, veterans benefits, and certain other government payments. If you receive a pension that is not taxable (some government pensions are not), it does not count either. Check your Form 1099-R or pension statement to see whether your pension is taxable.

State and local taxes on SSDI

Federal tax is only part of the picture. Some states tax SSDI, and some do not. The states that do tax SSDI are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont. Even in these states, many people pay no state tax on SSDI because state thresholds are higher than the federal threshold, or because state law exempts SSDI for people below a certain income level.

Check your state's tax agency website or call them directly to learn the rule in your state. If you live in a state that taxes SSDI and you think you might owe, a tax preparer familiar with your state's rules can help you figure out what you owe.

How to report SSDI on your tax return

In January of each year, the Social Security Administration sends you a Form SSA-1099 showing the total SSDI you received in the prior year. You use this form to report your benefits on your federal tax return.

On your Form 1040, you report SSDI on the line for "Social Security benefits." If you owe tax on part of your benefits, you also complete Schedule 1 (Form 1040), which has a worksheet for calculating the taxable portion. If you use tax software, it will ask you for the amount from your SSA-1099 and calculate the taxable portion for you.

Keep your SSA-1099 with your tax records. If you file a paper return, do not send the SSA-1099 to the IRS — keep it for your records. If you file electronically, the IRS receives the information directly from Social Security.

What happens if you do not report SSDI on your tax return

The IRS receives a copy of your SSA-1099 from Social Security, so they know how much you received. If you do not report it on your return and you owe tax on it, the IRS will eventually notice the discrepancy. This can result in a notice of underreported income, a bill for back taxes plus interest, and potentially penalties.

Even if you do not owe tax on your SSDI because your combined income is below the threshold, you may still be required to file a tax return if your other income is high enough. Check the IRS filing requirements based on your age and filing status on the IRS website.

Working while on SSDI and tax implications

If you work while receiving SSDI, your wages count as income for the combined income test. This means work can push you over the threshold and make part of your SSDI taxable. However, SSDI has its own work incentive rules that allow you to earn some money without losing benefits — these are separate from the tax rules.

The work incentive called "trial work period" lets you work and earn any amount for nine months without losing benefits. After that, SSDI has an "earnings test" that reduces benefits if you earn above a certain amount (the amount changes each year). Even if your benefits are reduced due to work, you still report the full SSDI amount you received on your tax return, and the combined income test still applies.

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 you are below the filing threshold for your age and filing status, you do not have to file. However, if you have other income — even a small amount — you may be required to file. Check the IRS filing requirements based on your age and filing status on the IRS website.

What if I owe tax on SSDI but cannot pay it all at once?

You can set up a payment plan with the IRS. Contact the IRS at 1-800-829-1040 to discuss options. You can also request an installment agreement online through the IRS website. Paying in installments means you will owe interest and possibly penalties, but it is better than not paying at all.

Does SSI count as income for the SSDI tax test?

No. SSI is a separate program and is never taxable. It also does not count toward the combined income test for SSDI. If you receive both SSDI and SSI, only the SSDI amount matters for the tax calculation.

Can I reduce my SSDI taxes by claiming certain deductions?

Standard deductions and itemized deductions do not affect whether you owe tax on SSDI. The combined income test is based on gross income, not income after deductions. However, deductions do reduce your overall taxable income, which can lower your total tax bill.

What if I disagree with the amount on my SSA-1099?

Contact Social Security directly at 1-800-772-1213 or visit your local Social Security office. Bring your records showing what you received. Social Security will correct the form if there is an error and send you a corrected SSA-1099. Do not file your tax return until you have the correct form.