The 2017 tax rules for SSDI

In 2017, whether you owed federal income tax on your Social Security Disability Insurance (SSDI) benefits depended on your total income for that year. The IRS used a formula called "combined income" to decide if any of your benefits were taxable. Combined income meant your adjusted gross income plus nontaxable interest plus half of your SSDI benefits.

If your combined income fell below a certain threshold, you owed no federal tax on your SSDI. If it exceeded that threshold, you had to count between 50 and 85 percent of your benefits as taxable income. The thresholds themselves did not change from year to year — they were set in 1983 and remained the same in 2017.

Key Takeaways

  • In 2017, the income thresholds that determined whether SSDI was taxable were $25,000 for single filers and $32,000 for married couples filing jointly — these amounts have not changed since 1983.
  • If your combined income was below the threshold for your filing status, you owed no federal tax on your SSDI benefits.
  • If your combined income exceeded the threshold, you calculated taxable benefits using a two-tier formula that could make between 50 and 85 percent of your benefits subject to tax.
  • State income tax rules for SSDI varied by state in 2017, and some states taxed SSDI while others did not.

The income thresholds that applied in 2017

The first threshold was $25,000 for single filers, head of household filers, and may have access to widows or widowers. The second threshold was $32,000 for married couples filing jointly. If you were married filing separately, the threshold was $0 — meaning any combined income at all could trigger taxation of your benefits.

These thresholds had remained unchanged since Congress set them in 1983. Because they did not adjust for inflation, more people crossed into the taxable range each year, even if their actual income stayed the same.

How the two-tier formula worked in 2017

Once your combined income exceeded the first threshold, you did not automatically owe tax on all your benefits. Instead, the IRS used a two-tier calculation.

In the first tier, you took the amount by which your combined income exceeded the first threshold (up to $9,000 for single filers, or $12,000 for joint filers). You then multiplied that amount by 50 percent. This gave you the amount of benefits potentially subject to tax in tier one.

In the second tier, if your combined income exceeded the second threshold ($34,000 for single filers, $44,000 for joint filers), you took the excess above that second threshold and multiplied it by 85 percent. You then added the tier-one amount to the tier-two amount. The result could not exceed 85 percent of your total SSDI benefits for the year.

This meant that even high-income beneficiaries never paid tax on more than 85 percent of their SSDI in 2017.

State income tax on SSDI in 2017

Federal tax rules and state tax rules were separate. In 2017, most states did not tax SSDI benefits at all. However, a small number of states did include SSDI in taxable income for state purposes.

The states that taxed SSDI in 2017 were Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont. If you lived in one of these states and owed federal tax on your benefits, you likely owed state tax as well, though the calculation and thresholds sometimes differed from the federal formula.

If you lived in a state that did not tax SSDI, you could exclude your benefits from state income even if you had to include them in your federal return.

What to do if you received SSDI in 2017 and have not filed yet

If you received SSDI in 2017 and did not file a federal tax return for that year, you may still need to do so. The IRS has no time limit for assessing tax owed, though there are limits on how far back they can go to collect it. If you think you owed tax on your 2017 benefits, you can file an amended return using Form 1040-X.

The Social Security Administration sends Form SSA-1099 each January showing the total SSDI you received in the previous year. If you did not receive one and think you should have, you can request a copy from Social Security by calling 1-800-772-1213 or visiting your local Social Security office.

How 2017 compared to other years

The tax treatment of SSDI has remained the same since 1983, so the rules that applied in 2017 also applied in 2016, 2018, 2019, and every year since. The only thing that changes from year to year is the amount of SSDI people receive and their other income sources.

However, Congress has periodically discussed raising or adjusting the income thresholds to account for inflation. As of 2017, no such adjustment had been made, meaning the thresholds were worth far less in real dollars than they had been in 1983.

Frequently Asked Questions

If I did not owe federal tax on my SSDI in 2017, did I still have to file a return?

Not necessarily. If your only income was SSDI and you had no other reason to file, you were not required to file a federal return. However, if you had other income or were may have access to to a refund (for example, because taxes were withheld from other sources), filing could benefit you.

Can I get a refund if I paid tax on my SSDI in 2017?

You cannot get a refund of tax you owed on SSDI itself. However, if you overpaid your total tax liability for 2017 — for example, because too much was withheld from other income — you could receive a refund of the overpayment. Filing an amended return with Form 1040-X would let you claim that refund.

What if I lived in one of the states that taxes SSDI but did not pay state tax in 2017?

You may owe back state tax. Contact your state's tax authority to find out whether you are required to file an amended return. Some states have their own time limits for assessing tax, which may be shorter than the federal limit.

Did the tax thresholds change between 2016 and 2017?

No. The thresholds remained $25,000 for single filers and $32,000 for joint filers in both years, as they have since 1983. They did not change in 2017 or any year after.