The short answer: it depends on your other income
You may owe federal income tax on your SSDI payments, but only if your total income exceeds a certain threshold. Social Security uses a formula called "combined income" to decide whether your benefits are taxable. Combined income includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits. If that number is above the threshold for your filing status, some or all of your benefits become taxable.
The thresholds are the same every year: $25,000 for single filers and $32,000 for married couples filing jointly. These numbers have not changed since 1984, which means more people cross them each year as wages and other income rise.
The tax itself is not owed to Social Security. You owe it to the IRS, and you report it on your federal income tax return like any other income.
Key Takeaways
- Your SSDI is taxable only if your combined income (wages, interest, and half your benefits) exceeds $25,000 single or $32,000 married filing jointly.
- Combined income includes money from work, pensions, interest, dividends, and rental income—not just wages.
- If you are taxable, only up to 85 percent of your benefits can be included in your taxable income, never 100 percent.
- You report taxable SSDI on Form 1040 or 1040-SR; Social Security sends you a Form SSA-1099 each January showing what you received.
- Owing tax on your benefits does not reduce the amount Social Security pays you each month.
How combined income is calculated
Combined income is not the same as your total income. Social Security and the IRS use a specific formula. Start with your adjusted gross income (AGI)—the number from your tax return after deductions like educator expenses or student loan interest. Add any nontaxable interest you earned, such as interest from municipal bonds. Then add half of your total Social Security benefits for the year.
That sum is your combined income. If it is below the threshold for your filing status, none of your SSDI is taxable. If it is above the threshold, you move to the next step.
The reason half your benefits are included in this calculation is historical: Congress wanted to tax benefits only for people with substantial other income, and this formula was the mechanism chosen. It does not mean half your benefits are automatically taxable.
How much of your benefits becomes taxable
If your combined income exceeds the threshold, the IRS uses a two-tier system. The amount you are over the threshold determines how much of your benefits are taxable, up to a maximum of 85 percent.
For the first tier, if your combined income is between the threshold and $9,000 above it (single) or $12,000 above it (married filing jointly), up to 50 percent of your benefits can be taxable. For the second tier, any amount above those limits can result in up to 85 percent of your benefits being taxable.
The exact calculation is complex, and the IRS worksheet on Form 1040 instructions walks through it step by step. Many people use tax software or a tax preparer to work through it rather than calculating by hand.
What counts as income for this calculation
Combined income includes far more than wages. It includes W-2 income from employment, but also self-employment income, pensions, annuities, interest, dividends, capital gains, rental income, and royalties. It includes income from a spouse if you file jointly.
Some income does not count. Supplemental Security Income (SSI) is not included. Veterans benefits are not included. Gifts and inheritances are not included. Medicaid and other means-tested benefits do not count.
If you are still working while receiving SSDI, your wages are part of your combined income. This is one reason people on SSDI who return to work sometimes find their benefits become taxable even though they were not before.
Reporting taxable SSDI on your tax return
Each January, Social Security mails you a Form SSA-1099 showing how much you received in benefits during the previous year. This form goes to you and to the IRS. You use the amount shown on Box 5 of that form when you calculate your combined income and determine whether your benefits are taxable.
If your benefits are taxable, you report the taxable portion on Form 1040 or Form 1040-SR (for people 65 and older). The instructions for these forms include a worksheet to calculate the taxable amount. You enter the result on the appropriate line of your return.
If you file electronically, tax software usually handles this calculation for you once you enter the information from your SSA-1099. If you file by paper, you work through the IRS worksheet and enter the number yourself.
What happens if you owe tax on your benefits
Owing tax on your SSDI does not change the amount Social Security pays you. Your monthly check stays the same. The tax is owed to the IRS, not to Social Security, and you pay it the same way you would pay any other income tax—either through withholding during the year or by paying when you file your return.
You can request that Social Security withhold federal income tax from your benefits if you expect to owe tax. You do this by completing Form W-4V and submitting it to your local Social Security office or online through your my Social Security account. You choose to withhold 7, 10, 12, or 22 percent of your monthly benefit.
If you do not withhold and you owe a large amount when you file, you may owe penalties and interest. The IRS allows you to make quarterly estimated tax payments if that works better for your situation.
State income tax on SSDI
Thirty-seven states do not tax Social Security benefits at all, regardless of your income. Thirteen states tax SSDI under some circumstances. The rules vary significantly by state.
Some states follow the federal formula exactly. Others use different thresholds or allow different deductions. A few states tax only a portion of benefits even if you are over the threshold. You need to check your specific state's rules, which are usually available on your state revenue or taxation department website.
If you live in a state that taxes benefits, you may need to file a state return even if you do not owe federal tax, or vice versa. State tax software or a tax preparer familiar with your state can help you determine what you owe.
Frequently Asked Questions
Can I reduce my combined income to avoid paying tax on my benefits?
You can reduce your adjusted gross income through certain deductions—traditional IRA contributions, educator expenses, or student loan interest, for example. However, you cannot reduce the nontaxable interest portion of the formula or half your benefits themselves. Some people with high other income find it difficult to get below the threshold.
If I work part-time, will my wages make my benefits taxable?
Yes, your wages are part of your combined income. If your wages plus other income plus half your benefits exceed the threshold, some of your benefits become taxable. This is separate from the Social Security earnings test, which may reduce your benefits if you earn above a different limit before full retirement age.
What if I did not know my benefits were taxable and did not pay?
Contact the IRS or a tax professional to file an amended return for the year in question. The IRS can assess penalties and interest if you owe, but filing the return and paying what you owe stops additional penalties from accruing. You can also set up a payment plan with the IRS if you cannot pay in full.
Does my spouse's income count if we file jointly?
Yes. When you file a joint return, combined income includes both spouses' adjusted gross income, nontaxable interest, and half of both spouses' Social Security benefits. This can push a couple over the threshold even if one spouse has little income.
Will my SSDI be reduced if I owe tax on it?
No. Your monthly SSDI payment does not change based on whether your benefits are taxable. You owe the tax to the IRS separately. The only way your SSDI payment changes is if your medical condition improves, you reach full retirement age, or you earn above the limit during the earnings test period.