The IRS taxes some SSDI income and not other disability income, depending on what kind you receive and how much you earn besides it.

Social Security Disability Insurance (SSDI) is taxable income to the IRS if your total income crosses a threshold. That threshold is low—$25,000 for a single filer, $32,000 for married filing jointly. Once you cross it, the IRS taxes up to 85 percent of your SSDI benefits, though most people pay tax on a smaller portion.

Other disability income—workers' compensation, disability payments from your employer's insurance plan, or Veterans benefits—is generally not taxable. The tax rules are different for each one. This matters because the IRS counts SSDI differently than it counts other money you receive.

Key Takeaways

  • SSDI becomes taxable when your "combined income" (SSDI plus other earnings) exceeds $25,000 single or $32,000 married filing jointly.
  • Workers' compensation and employer disability insurance are not taxed by the IRS, but SSDI is treated as income.
  • You calculate how much SSDI is taxable using a worksheet on IRS Form 1040 instructions, not by guessing.
  • If the IRS withholds tax from your SSDI check, you can adjust your W-4 or make quarterly estimated payments instead.

What counts as income when calculating the SSDI tax threshold

The IRS uses a number called combined income to decide whether your SSDI is taxable. Combined income is your adjusted gross income (AGI) plus nontaxable interest plus half of your SSDI benefits. That last part is important: the IRS counts half your SSDI amount toward the threshold, not the full amount.

If you work and earn wages, those wages count toward combined income. If you have interest from a savings account, that counts. If you receive a pension, that counts. If you receive workers' compensation, it does not count—workers' compensation is excluded from combined income entirely.

Say you are single, receive $1,500 per month in SSDI, and earn $15,000 per year from part-time work. Your combined income is $15,000 (wages) plus $9,000 (half of $18,000 annual SSDI) = $24,000. You are below the $25,000 threshold, so none of your SSDI is taxable that year.

How much of your SSDI is actually taxed

Once you cross the threshold, the IRS does not tax all of your SSDI. Instead, it taxes the lesser of two amounts. This is where the math gets specific, and it is why you should use the worksheet rather than estimate.

The first amount is 50 percent of the SSDI you received that year. The second amount is 50 percent of the amount by which your combined income exceeds the threshold. Whichever is smaller is what gets added to your taxable income.

If your combined income is very high, up to 85 percent of your SSDI can become taxable instead of 50 percent. This happens when your combined income exceeds $34,000 single or $44,000 married filing jointly. The IRS Form 1040 instructions include a worksheet that walks you through both calculations. The worksheet is free and available on the IRS website.

Other disability income and how the IRS treats it

Workers' compensation is not taxable income. If you receive a lump-sum settlement or ongoing monthly payments for a work injury, the IRS does not tax it. It also does not count toward the combined income threshold that determines whether your SSDI is taxable.

Disability insurance from your employer (sometimes called group disability or long-term disability) is taxable only if your employer paid the premiums with pre-tax dollars. If you paid the premiums yourself with after-tax money, the benefits are not taxable. Check your benefits summary or ask your employer's HR department which applies to your plan.

Veterans Disability Compensation is not taxable. If you receive VA disability payments, they do not count as income to the IRS and do not count toward the SSDI threshold either.

Supplemental Security Income (SSI) is not taxable. SSI is a separate program from SSDI, and SSI benefits are never taxed by the IRS.

What to do if you owe tax on SSDI

If your combined income puts you over the threshold, you have three options. First, you can file a tax return and pay the tax owed when you file. Second, you can ask Social Security to withhold federal income tax from your SSDI check each month. Third, you can make quarterly estimated tax payments to the IRS.

To request withholding, fill out Form W-4V and send it to your local Social Security office or mail it to Social Security. You choose how much to withhold—$10, $20, $50, or a percentage of your benefit. Social Security will begin withholding the following month.

If you prefer quarterly payments, you file Form 1040-ES with the IRS four times per year. This route works better if your income varies month to month or if you want to avoid a large tax bill at filing time.

When you might not owe tax even though you are over the threshold

Some people over the threshold still owe no tax because their total taxable income stays below the standard deduction for their filing status. The standard deduction for 2024 is $14,600 for a single filer and $29,200 for married filing jointly. These amounts change each year.

If your taxable income (after the SSDI calculation) is below the standard deduction, you owe no federal income tax. You may still want to file a return if you paid estimated taxes or had withholding, because you would receive a refund.

State income tax on SSDI

Most states do not tax SSDI. However, a few states tax it the same way the federal government does. Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont all tax SSDI under their own rules. The threshold and calculation may differ from the federal rules.

If you live in one of these states, contact your state tax authority or a tax preparer familiar with your state's rules. Some states have lower thresholds or tax a higher percentage of benefits than the IRS does.

Frequently Asked Questions

If I receive workers' compensation, does that reduce my SSDI?

Workers' compensation does not count as income for SSDI purposes, so it does not reduce your SSDI payment. However, if you are receiving workers' compensation and SSDI for the same injury, Social Security may offset your SSDI by the workers' compensation amount under the workers' compensation offset rule. This is a separate issue from taxation.

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

If SSDI is your only income and your combined income is below the threshold, you do not have to file. If you are over the threshold, you must file to report the taxable portion. If you had tax withheld, you should file to claim a refund.

Can I reduce my SSDI tax by earning less money?

Yes. If you are over the threshold because of wages or self-employment income, reducing that income lowers your combined income and may lower the amount of SSDI that is taxable. However, if you are working, you should also check whether your earnings affect your SSDI payment itself under the substantial gainful activity rules.

What if I disagree with the tax the IRS says I owe on SSDI?

You can file Form 1040-X (amended return) if you believe the calculation is wrong. Attach the SSDI calculation worksheet and explain the error. If the IRS disagrees, you can appeal through the normal tax dispute process or request a hearing with the IRS Office of Appeals.

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

No. Each person's SSDI is calculated separately for tax purposes. If you are married filing jointly, you combine your incomes and use the married filing jointly threshold ($32,000), but your spouse's SSDI benefits are not added to yours for the calculation.