Whether you owe taxes on SSDI in 2023 depends on your other income and filing status

Social Security Disability Insurance (SSDI) is taxable only if you have income from other sources. The IRS uses a formula called "combined income" to decide whether any of your benefits count as taxable. Combined income is your adjusted gross income plus nontaxable interest plus half your SSDI benefits. If that total exceeds a threshold that depends on your filing status, you must include some or all of your SSDI on your tax return.

For 2023, the thresholds were $25,000 for single filers and $32,000 for married filing jointly. If your combined income falls below these amounts, you owe no federal income tax on your SSDI, even if you file a return. If it exceeds the threshold, the IRS taxes up to 85 percent of your benefits, though in practice most people pay tax on a smaller portion.

The calculation is complex because it depends on what other income you have—wages, pensions, interest, rental income, or distributions from retirement accounts all count. Many people on SSDI have little or no other income and therefore pay no tax. Others who work part-time or receive a pension may owe tax on part of their benefits.

Key Takeaways

  • SSDI becomes taxable only when your combined income (adjusted gross income plus half your benefits) exceeds $25,000 for single filers or $32,000 for married filing jointly in 2023.
  • If you owe tax on SSDI, the IRS taxes up to 85 percent of your benefits, but the actual percentage depends on how much your combined income exceeds the threshold.
  • Work incentive programs like Impairment Related Work Expenses (IRWE) and Plans to Achieve Self-Support (PASS) can reduce your countable income and lower or eliminate SSDI taxation.
  • You must file a tax return to report SSDI if your combined income exceeds the threshold, even if no tax is ultimately due.
  • State income tax treatment of SSDI varies—some states do not tax SSDI at all, while others follow federal rules or have their own thresholds.

How the IRS calculates combined income

Combined income is the starting point for the entire calculation. It equals your adjusted gross income (AGI) plus any nontaxable interest (such as interest from municipal bonds) plus half of your SSDI benefits for the year. This formula is unusual because it counts half your benefits even though those benefits themselves may not be taxable—the IRS uses this as a screening mechanism to identify who might owe tax.

Adjusted gross income includes wages, self-employment income, taxable pensions, taxable interest, capital gains, and distributions from IRAs or 401(k)s. It does not include Supplemental Security Income (SSI), which is a different program and is never taxable. It also does not include other nontaxable income such as workers' compensation or certain veterans' benefits.

Once you calculate combined income, you compare it to your filing status threshold. For 2023, single filers and heads of household use $25,000; married filing jointly use $32,000; married filing separately use $0 (meaning any combined income triggers taxation). If your combined income is at or below the threshold, you owe no federal tax on SSDI. If it exceeds the threshold, you move to the next step.

The two-tier system for taxing SSDI benefits

The IRS does not tax all SSDI above the threshold equally. Instead, it uses a two-tier system. The first tier taxes up to 50 percent of your benefits; the second tier taxes up to an additional 35 percent, for a maximum of 85 percent of total benefits.

The first tier applies when your combined income exceeds the threshold but does not exceed the threshold plus $9,000 (for 2023). In this range, you pay tax on the lesser of (a) 50 percent of the excess over the threshold, or (b) 50 percent of your total SSDI benefits. For example, if you are single with combined income of $28,000 and SSDI of $15,000, the excess over the threshold is $3,000. Half of that is $1,500, and half of your benefits is $7,500. You pay tax on the lesser amount: $1,500.

The second tier applies when your combined income exceeds the threshold plus $9,000. In this range, you pay tax on the lesser of (a) 85 percent of the excess over the higher threshold, plus 50 percent of the first $9,000 of excess, or (b) 85 percent of your total SSDI benefits. This tier catches people with substantial other income and ensures that high-income beneficiaries pay tax on most of their benefits.

Work incentive programs that reduce SSDI taxation

Impairment Related Work Expenses (IRWE) are costs you pay to work despite your disability. These include medical devices, medications, therapy, transportation to work, or attendant care services. IRWE reduces your countable earnings, which in turn reduces your combined income and may lower or eliminate SSDI taxation. To claim IRWE, you must report the expenses to Social Security when you report your work income, and you must have documentation (receipts, invoices, or statements from providers).

Plans to Achieve Self-Support (PASS) allow you to set aside income and resources toward a work goal without affecting your SSDI. If you have a PASS in place, the income and resources in the plan do not count toward your combined income for tax purposes. PASS requires a written plan approved by Social Security, and you must submit it before the tax year in question. PASS is complex and requires ongoing reporting, but it can substantially reduce or eliminate SSDI taxation for people working toward a specific goal such as starting a business or obtaining a degree.

Both IRWE and PASS must be reported to Social Security and documented carefully. If you use either, keep records of all expenses or plan activity and report them accurately on your tax return and to Social Security. Errors in reporting can result in overpayment of benefits or underpayment of taxes.

State income tax treatment of SSDI

Federal taxation of SSDI does not automatically mean state taxation. Thirteen states do not tax SSDI at all: Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, and Pennsylvania. If you live in one of these states, you owe no state income tax on your SSDI even if you owe federal tax.

Other states follow federal rules and tax SSDI only if your combined income exceeds the federal threshold. Still others have their own thresholds or rules. Colorado, for example, does not tax SSDI if your federal adjusted gross income is below $20,000. Some states exclude SSDI entirely for residents over a certain age. You must check your state's specific rules or contact your state tax authority to know whether you owe state tax on SSDI.

If you live in a state that taxes SSDI and you owe federal tax on your benefits, you will likely owe state tax as well. Some states allow you to deduct federal tax paid on SSDI from your state tax liability, which can reduce the total tax burden. State tax forms and instructions usually explain this, but if you are unsure, contact your state department of revenue or a tax professional.

Reporting SSDI on your 2023 tax return

SSDI appears on your tax return on Form 1040, lines 5a and 5b. Line 5a is the total SSDI you received in 2023; line 5b is the taxable portion. Social Security sends you a Form SSA-1099 in January showing your total benefits for the prior year. Use this form to fill in line 5a. Do not estimate; use the exact figure from the SSA-1099.

If you owe tax on SSDI, you must file a return even if your total income is below the standard deduction. The IRS requires you to report the income and calculate the tax owed. If you do not owe tax, you may still choose to file to claim refundable credits such as the Earned Income Tax Credit (EITC), which can result in a refund even if no tax is due.

If you work and have SSDI, you may also report work incentive expenses such as IRWE on Schedule C (if self-employed) or as adjustments to income. Keep all receipts and documentation. If Social Security audits your work incentive claims, you will need to prove that the expenses were actually paid and were necessary for you to work.

What happens if you do not file when you owe tax on SSDI

If your combined income exceeds the threshold and you owe tax on SSDI but do not file a return, the IRS may assess a penalty for failure to file. The penalty is usually 5 percent of the unpaid tax for each month the return is late, up to 25 percent total. You may also owe interest on the unpaid tax, calculated daily from the original due date.

If you realize you should have filed in a prior year, you can still file a late return. The IRS generally does not pursue criminal charges for failure to file if you file within a few years and pay what you owe. However, the sooner you file, the sooner you stop accruing interest and penalties. If you are unsure whether you owed tax in a prior year, contact a tax professional or the IRS directly.

Frequently Asked Questions

Can I reduce my SSDI taxation by giving my benefits to charity?

No. Charitable donations do not reduce your combined income for SSDI tax purposes. Combined income is calculated before charitable deductions. However, if you itemize deductions on your tax return, charitable donations can reduce your overall tax liability, which may offset some of the tax on SSDI.

If I receive backpay from Social Security, do I owe tax on all of it in the year I receive it?

Yes, backpay counts as income in the year you receive it, which can push your combined income well above the threshold. You may owe tax on a large portion of the backpay. Some people use a special election (Form 4703) to spread the tax over the years the benefits were earned, which can reduce the tax burden. Consult a tax professional if you receive a large backpay.

Does Medicare premium deduction from my SSDI reduce my taxable benefits?

No. Medicare premiums deducted from your SSDI check do not reduce your taxable income. The IRS counts your full SSDI benefit amount before any deductions. However, if you pay Medicare premiums directly out of pocket, those may be deductible as medical expenses if you itemize.

What if I disagree with the combined income calculation on my SSA-1099?

Contact Social Security directly to request a corrected form. Social Security must issue a corrected SSA-1099 if the amount is wrong. Keep a copy of your request and any correspondence. If Social Security does not correct it, you can file your tax return using the correct amount and attach a statement explaining the discrepancy.

Do I need to file a return if I have SSDI and no other income?

No, not for federal tax purposes. If SSDI is your only income, your combined income is half your SSDI, which is almost certainly below the threshold. You do not owe federal tax and are not required to file. However, you may choose to file to claim the Earned Income Tax Credit or other refundable credits if you also have work income.