Disability payments are taxable only if your total income exceeds certain thresholds, and only a portion of your benefits may be subject to tax

Whether you owe federal income tax on disability payments depends on how much other income you receive in a year. Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) are treated differently by the IRS. SSDI may be taxable if your "combined income" — a specific calculation the IRS uses — goes above $25,000 for a single filer or $32,000 for a married couple filing jointly. SSI is never taxable, regardless of how much other income you have.

The key is understanding what counts as income for this calculation. It includes wages, self-employment income, interest, dividends, pensions, and certain other sources. It does not include food, housing, or other in-kind support. If you are below the threshold, you owe nothing on your SSDI. If you are above it, you may owe tax on up to 85 percent of your benefits, though in practice the amount is usually lower.

Key Takeaways

  • SSDI becomes taxable only when your combined income exceeds $25,000 (single) or $32,000 (married filing jointly); SSI is never taxable.
  • Combined income includes wages, self-employment earnings, interest, dividends, and pensions, but not food or housing information.
  • If you are taxable, the IRS uses a two-tier formula that may subject up to 85 percent of your SSDI to tax, though the actual amount is often much less.
  • You must report SSDI on your tax return even if none of it is taxable, using the amount shown on your SSA-1099-B form.
  • If you owe tax on SSDI, you can request that Social Security withhold federal income tax directly from your monthly payment.

How the IRS calculates combined income for SSDI

Combined income is not the same as your adjusted gross income (AGI). The IRS starts with your AGI and then adds back certain deductions and your nontaxable interest. Then it adds one-half of your SSDI benefits to that total. That final number is your combined income for purposes of determining whether your SSDI is taxable.

Example: You are single and receive $1,500 per month in SSDI ($18,000 per year). You also work part-time and earn $10,000 in wages. Your AGI is $10,000. Half of your SSDI is $9,000. Your combined income is $10,000 + $9,000 = $19,000. Since $19,000 is below the $25,000 threshold, none of your SSDI is taxable.

If your combined income exceeds the threshold, the IRS applies a two-tier formula. The first tier taxes the lesser of (1) 50 percent of your benefits or (2) 50 percent of the amount by which your combined income exceeds the threshold. The second tier taxes the lesser of (1) 85 percent of your benefits or (2) 85 percent of the amount by which your combined income exceeds $34,000 (single) or $44,000 (married). The total taxable amount cannot exceed 85 percent of your annual SSDI.

The difference between SSDI and SSI taxation

SSDI and SSI are separate programs with different tax treatment. SSDI is based on your work history or your parent's work history. SSI is a needs-based program for people with low income and resources. The IRS never taxes SSI benefits, period. You do not report SSI on your federal tax return.

If you receive both SSDI and SSI in the same year, only the SSDI portion may be taxable. Social Security sends you a separate SSA-1099-B form for each benefit type, so you can see which amount is which. When you file your tax return, you report only the SSDI amount in the section for Social Security benefits.

What income counts and what does not

For the combined income calculation, the IRS counts most sources of income. Wages from a job count. Self-employment income counts. Interest from a bank account counts. Dividends and capital gains count. Pensions, annuities, and distributions from retirement accounts count. Rental income counts. Income from a business counts.

Some income does not count. Supplemental Security Income (SSI) does not count. Food stamps do not count. Housing information does not count. Medicaid does not count. Any in-kind support — things given to you rather than money — does not count. Gifts and inheritances do not count. Loans do not count, because you have to repay them.

If you are unsure whether a specific source of income counts, the safest approach is to include it in your combined income calculation. If you later find out it should not have been included, you can file an amended return.

When you must report SSDI on your tax return

You must report SSDI on your federal tax return if you are required to file a return based on your total income. The threshold for filing depends on your age and filing status. For 2024, a single person under 65 must file if their gross income is $14,600 or more. A single person 65 or older must file if their gross income is $18,450 or more. Married couples have higher thresholds.

Even if none of your SSDI is taxable, you still must report it on your return if you meet the filing requirement. You report it on Form 1040, line 5b, using the amount shown on your SSA-1099-B form. Social Security sends you this form by January 31 each year.

If your only income is SSDI and it is below the filing threshold, you do not have to file a return. However, filing may be worth doing anyway if you are due a refund — for example, if you had taxes withheld from wages earlier in the year.

Requesting tax withholding from your SSDI payment

If you know you will owe tax on your SSDI, you can ask Social Security to withhold federal income tax directly from your monthly payment. This works the same way as tax withholding from a paycheck. You complete Form W-4V (Voluntary Withholding Request) and submit it to Social Security.

You can request withholding of 7 percent, 10 percent, 15 percent, or 25 percent of your monthly benefit. Social Security will hold that amount and send it to the IRS on your behalf. At tax time, you report the withheld amount as a payment toward your tax liability, which reduces what you owe or increases your refund.

To request withholding, contact Social Security at 1-800-772-1213 or visit your local Social Security office. You can also submit Form W-4V by mail to your local office. If you change your mind, you can stop withholding at any time by submitting a new form or calling.

State income tax on disability payments

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 a threshold. A few states have their own thresholds that differ from the federal amounts. Your state tax return instructions will tell you whether SSDI is taxable in your state.

If your state taxes SSDI and you want to have tax withheld, you must request it separately from your federal withholding. Form W-4V allows you to request state withholding as well. Some states have their own withholding forms. Contact your state tax agency or Social Security to find out what form to use.

Frequently Asked Questions

Do I have to pay taxes on all of my SSDI if I go over the income threshold?

No. Even if you exceed the threshold, only a portion of your SSDI becomes taxable. The IRS uses a two-tier formula, and the maximum amount that can be taxed is 85 percent of your annual benefits. In most cases, the actual taxable amount is much lower — often 50 percent or less.

What if I receive SSDI and also work part-time?

Your wages count toward your combined income. If your wages plus half your SSDI exceed the threshold, some of your SSDI may be taxable. However, if your wages are low enough, you may still be below the threshold. Use the combined income formula to calculate your specific situation.

Can I avoid paying taxes on SSDI by not filing a return?

If you are required to file based on your total income, you must file and report your SSDI even if none of it is taxable. If you are not required to file, you do not have to. However, filing anyway may benefit you if you are due a refund from other taxes withheld.

If I have tax withheld from my SSDI, will that cover all the tax I owe?

Withholding helps, but it may not cover your full tax liability. The amount you request is a percentage of your monthly benefit, and it may not equal your actual tax owed. You should calculate your estimated tax liability and adjust your withholding accordingly, or be prepared to pay additional tax at filing time.

Does my spouse's income affect whether my SSDI is taxable?

If you file jointly, your spouse's income counts toward your combined income. If you file separately, your spouse's income generally does not count. However, filing separately may result in more of your SSDI being taxable. Consult a tax professional to determine which filing status is better for your situation.