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

Whether you owe federal income tax on your Social Security Disability Insurance (SSDI) payments depends on your total income for the year—not just what you receive from SSDI. If SSDI is your only income source, you almost certainly will not owe federal tax. 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 determine the taxable portion. Combined income is the sum of your adjusted gross income, nontaxable interest, and half of your SSDI benefits. If that total exceeds a threshold amount, you may owe tax on up to 50% or 85% of your benefits, depending on how much you exceed the threshold.

The threshold amounts are $25,000 for single filers and $32,000 for married couples filing jointly. These thresholds have not changed since 1984, which means more people become subject to taxation each year as their other income grows.

Key Takeaways

  • If SSDI is your only income, you will not owe federal income tax on your benefits.
  • If you have other income, the IRS uses a "combined income" calculation to determine whether part of your SSDI becomes taxable.
  • The income thresholds ($25,000 single, $32,000 married filing jointly) have remained the same since 1984.
  • You can request that the Social Security Administration withhold federal income tax from your SSDI payments to avoid a tax bill at the end of the year.
  • State income tax treatment of SSDI varies—some states tax it, some do not, and some have their own rules based on age or income.

How the IRS calculates whether your SSDI is taxable

The IRS does not tax SSDI the same way it taxes wages. Instead, it uses a two-tier system based on your combined income. Combined income means your adjusted gross income (AGI) plus nontaxable interest plus half of your SSDI benefits for the year.

If your combined income is below the threshold ($25,000 single or $32,000 married filing jointly), none of your SSDI is taxable. If your combined income exceeds the threshold, you may owe tax on the lesser of: (1) 50% of the amount over the threshold, or (2) 50% of your total SSDI benefits.

If your combined income exceeds a second, higher threshold ($34,000 single or $44,000 married filing jointly), you may owe tax on up to 85% of your benefits. This second tier applies only if your combined income is substantially higher than the first threshold.

Example: A single person receives $15,000 in SSDI and $20,000 in pension income. Combined income is $20,000 + $7,500 (half of SSDI) = $27,500. This exceeds the $25,000 threshold by $2,500. The taxable portion is the lesser of $1,250 (50% of $2,500) or $7,500 (50% of SSDI), which is $1,250. Up to $1,250 of the SSDI is subject to federal income tax.

What counts as "other income" for this calculation

The IRS includes many types of income in the combined income calculation. Wages and self-employment income count. So do pensions, annuities, rental income, interest, dividends, and capital gains. Nontaxable interest from municipal bonds also counts toward combined income, even though it is not taxable itself.

Some income does not count. Supplemental Security Income (SSI) is not included. Veterans' benefits are not included. Gifts and inheritances do not count. Neither do returns of your own contributions to a retirement account.

If you are married filing jointly, the IRS combines both spouses' income to determine the threshold. This means one spouse's SSDI can become taxable because of the other spouse's earnings, even if the SSDI recipient has no other income.

Withholding taxes from your SSDI payments

You can ask the Social Security Administration to withhold federal income tax directly from your monthly SSDI payment. This is optional, but it can help you avoid owing a large tax bill when you file your return.

To request withholding, you complete Form W-4V (Voluntary Withholding Request) and submit it to your local Social Security office, by mail, or online through your my Social Security account. You can choose to have 10%, 15%, 25%, or 35% of your benefit withheld each month.

If you request withholding, Social Security will send you a new Form W-4V each year so you can adjust the amount. You can change or stop withholding at any time by submitting a new form. The amount withheld appears on your annual Social Security Benefit Statement (Form SSA-1099), which you use when filing your tax return.

State income tax on SSDI

Federal income tax and state income tax are separate. Some states do not tax SSDI at all, regardless of your income level. Other states follow the federal rule and tax SSDI only if your combined income exceeds the federal threshold. A few states have their own rules—for example, some exempt SSDI only for people over a certain age or below a certain income level.

States that do not tax SSDI include Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. These states have no income tax at all, or they specifically exclude SSDI from taxation.

If you live in a state that does tax SSDI, you may be able to request state income tax withholding as well. The process varies by state. Some states use the same Form W-4V, while others require a separate state form. Contact your state's tax authority or your Social Security office to learn the rules in your state.

What to do if you think you owe tax on your SSDI

If you receive SSDI and have other income, you should calculate your combined income before filing your tax return. You can do this yourself using the IRS worksheet in Publication 915 (Social Security and Equivalent Railroad Retirement Benefits), or you can ask a tax professional to help.

If you determine that some of your SSDI is taxable, you report it on your federal income tax return. The amount goes on Form 1040 (the main tax return form) and is included in your total income. You do not file a separate form for SSDI taxation.

If you did not have taxes withheld and you owe tax on your SSDI, you can pay the amount due when you file your return. If you owe a large amount, you may be able to set up a payment plan with the IRS. If you expect to owe tax in future years, you can request withholding on Form W-4V to reduce the amount due at tax time.

Frequently Asked Questions

Can I get a refund if too much tax was withheld from my SSDI?

Yes. If you request withholding and too much is taken out, you will receive a refund when you file your tax return, just as you would with any other income. The refund comes from the IRS, not from Social Security. You claim the refund on your tax return based on the amount shown on your Form SSA-1099.

Does my spouse's SSDI count as my income if we file jointly?

No, but it affects the threshold. When you file jointly, the IRS combines both spouses' income to calculate combined income. Your spouse's SSDI benefits are included in the calculation, which can make your own income taxable even if you have no other earnings. Each spouse's SSDI is taxed separately based on the joint combined income.

What if I work part-time while receiving SSDI?

Your wages count as income in the combined income calculation. Even a small amount of part-time earnings can push your combined income over the threshold and make some of your SSDI taxable. You should calculate your combined income before the year ends so you can request withholding if needed.

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

No. If SSDI is your only income and you have no other income, you are not required to file a federal income tax return. However, you may want to file anyway if you paid taxes through withholding, because you could receive a refund.

Will receiving SSDI affect my Medicare premiums?

SSDI itself does not directly affect Medicare premiums, but your combined income might. If your combined income is high enough to make some of your SSDI taxable, you may also be subject to higher Medicare Part B and Part D premiums under the Income-Related Monthly Adjustment Amount (IRMAA) rules. This is a separate calculation from SSDI taxation.