When SSDI becomes taxable income

Whether you owe federal income tax on your SSDI benefits depends on your combined income — a calculation that includes your benefits plus other money you earn. If your combined income exceeds a threshold set by the IRS, a portion of your benefits becomes taxable. The threshold is $25,000 for a single filer and $32,000 for married filing jointly; it has not changed since 1984.

The IRS uses a specific formula to determine how much of your benefits to count as taxable income. You calculate your combined income by adding your adjusted gross income, nontaxable interest, and half of your SSDI benefits. If that total exceeds the threshold for your filing status, you may owe tax on up to 50 percent or 85 percent of your benefits, depending on how far above the threshold you are.

Many people receiving SSDI have combined income below the threshold because SSDI itself is often the only income they receive. However, if you also work, receive a pension, have investment income, or are married and file jointly with a spouse who works, your combined income can push you into taxable territory.

Key Takeaways

  • SSDI becomes taxable only if your combined income (SSDI plus other income) exceeds $25,000 for single filers or $32,000 for married filing jointly.
  • The IRS counts half of your SSDI benefits as income when calculating whether you cross the threshold, even though the full amount goes into your bank account.
  • You may owe tax on up to 50 percent of your benefits if you slightly exceed the threshold, or up to 85 percent if you exceed it by a larger amount.
  • Social Security will not withhold taxes automatically; you must either pay estimated quarterly taxes or request withholding from your benefit check.

How the IRS calculates taxable SSDI

The calculation starts with your combined income, which the IRS defines as your adjusted gross income plus nontaxable interest plus half of your SSDI benefits. Adjusted gross income includes wages, self-employment income, capital gains, and taxable pension or retirement distributions. Nontaxable interest includes interest from municipal bonds and certain other sources.

Once you know your combined income, you compare it to the IRS threshold for your filing status. If your combined income is $25,000 or less (single) or $32,000 or less (married filing jointly), none of your benefits are taxable and you stop here. If your combined income exceeds the threshold, you move to the next step.

The amount of SSDI that becomes taxable depends on how far above the threshold you are. If your combined income exceeds the threshold by $4,500 or less (single) or $6,000 or less (married filing jointly), you may owe tax on up to 50 percent of your benefits. If your combined income exceeds the threshold by more than those amounts, you may owe tax on up to 85 percent of your benefits. The IRS uses a two-tier formula to calculate the exact amount.

Example: You are single and receive $1,500 per month in SSDI ($18,000 per year). You also earn $15,000 from part-time work. Your combined income is $15,000 (wages) plus $9,000 (half of $18,000 in SSDI) = $24,000. Since $24,000 is below the $25,000 threshold, none of your SSDI is taxable. If you earned $20,000 instead, your combined income would be $29,000, which exceeds the threshold by $4,000. You would then calculate how much of your benefits falls into the taxable range.

The difference between federal and state taxation

Federal taxation of SSDI follows the IRS rules described above. However, state taxation varies widely. Some states do not tax SSDI at all, regardless of your income level. Other states tax SSDI under their own rules, which may differ from federal thresholds and may be more or less generous.

States that do not tax SSDI include Alaska, Florida, Illinois, Iowa, Kansas, Louisiana, Michigan, Mississippi, Missouri, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin, and Wyoming. If you live in any of these states, you do not owe state income tax on your SSDI benefits.

States that tax SSDI include California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Indiana, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Montana, Nebraska, New Jersey, New York, Oregon, Rhode Island, South Carolina, Vermont, Virginia, and West Virginia. Each of these states has its own rules about thresholds, rates, and exemptions. Some states use the same federal threshold; others use a different one. Some states tax SSDI only if your total income exceeds a certain level; others tax it based on age or other factors.

You will need to check your state's tax authority website or speak with a tax preparer who knows your state's rules. The Social Security Administration does not handle state taxation questions.

Withholding taxes from your SSDI check

Social Security does not automatically withhold federal income tax from SSDI benefits. If you expect to owe tax, you have two options: request voluntary withholding from your benefit check, or pay estimated quarterly taxes to the IRS on your own.

To request withholding, you complete Form W-4V (Voluntary Withholding Request) and submit it to Social Security. You can request withholding of 7 percent, 10 percent, 12 percent, or 22 percent of your monthly benefit. Social Security will then deduct that amount from each check and send it to the IRS. You can change your withholding rate or stop it at any time by submitting a new Form W-4V.

Form W-4V is available on the Social Security website or by calling 1-800-772-1213. You can submit it online through your my Social Security account, by mail, or in person at a Social Security office. If you submit it online or by mail, allow 30 days for the change to take effect.

If you do not request withholding and you owe tax, you may need to pay estimated quarterly taxes directly to the IRS. Estimated taxes are due on April 15, June 15, September 15, and January 15. If you underpay, you may owe a penalty. Many people find it simpler to request withholding from their benefit check so they do not have to think about quarterly payments.

Reporting SSDI on your tax return

Each January, Social Security sends you a Form SSA-1099 (Social Security Benefit Statement) showing the total SSDI benefits you received in the previous year. You use this form to report your benefits on your federal tax return.

You report SSDI on Form 1040 (the main federal income tax form) or Form 1040-SR if you are 65 or older. The instructions that come with the form tell you where to enter your SSDI income and how to calculate the taxable portion using the IRS worksheet. If you use tax software, it will typically walk you through the calculation.

If you received SSDI for only part of the year — for example, if your benefits started in June — the Form SSA-1099 will show only the benefits you received from June through December. You report only the amount shown on the form, not a full year's worth of benefits.

If you are married and file jointly, both you and your spouse report your own SSDI on the same return. Your spouse's SSDI is reported separately and does not affect your calculation, though your spouse's other income does affect whether your benefits are taxable.

What happens if you do not pay taxes owed

If you owe tax on your SSDI and do not pay it, the IRS can offset your tax refund in future years. The IRS can also place a levy on your bank account or garnish other income. However, the IRS generally cannot garnish your SSDI benefits themselves — federal law protects SSDI from most creditors and from the IRS.

If you owe back taxes and cannot pay in full, you can request a payment plan from the IRS. You can set up an installment agreement online through the IRS website, by phone at 1-800-829-1040, or by mail. The IRS will charge a setup fee and interest on the unpaid balance, but a payment plan allows you to pay over time rather than in one lump sum.

If you believe you made an error on a past tax return, you can file an amended return using Form 1040-X. You have generally three years from the original due date to file an amended return and claim a refund.

Frequently Asked Questions

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

No. If SSDI is your only income and your combined income is below the IRS threshold ($25,000 for single filers), you do not have to file a federal tax return. However, if you have other income or if your combined income exceeds the threshold, you must file to report the taxable portion of your benefits.

If I work part-time, will my SSDI be taxed?

Possibly. Your SSDI becomes taxable only if your combined income (wages plus half your SSDI) exceeds the threshold. If you earn $10,000 and receive $18,000 in SSDI, your combined income is $19,000, which is below the $25,000 threshold for single filers, so your SSDI is not taxable. The exact answer depends on how much you earn and how much SSDI you receive.

Can I reduce my taxable SSDI by lowering my other income?

Yes. Since SSDI becomes taxable only when combined income exceeds the threshold, reducing other income can bring you below the threshold and eliminate the tax. For example, if you are close to the threshold, you might defer taking a taxable distribution from a retirement account, or you might adjust your work hours. Speak with a tax preparer about strategies that fit your situation.

What if I disagree with the amount of SSDI shown on my Form SSA-1099?

Contact Social Security at 1-800-772-1213 or visit your local office. Social Security will review your account and send you a corrected Form SSA-1099 if an error is found. You then file an amended tax return using Form 1040-X to correct your tax liability.

Do I have to pay self-employment tax on SSDI?

No. SSDI is not earned income, so it is not subject to self-employment tax. However, if you also have self-employment income from work, you owe self-employment tax on that income. Your SSDI and your self-employment income are both counted when determining whether your SSDI benefits are taxable for income tax purposes.