The Short Answer: It Depends on Your Other Income

Whether you owe federal income tax on your SSDI benefits depends almost entirely on how much other income you have. Social Security counts your benefits as taxable income only if your combined income exceeds a threshold set by the IRS. For most people receiving only SSDI with no other earnings, no tax is owed. But if you work, have investment income, or receive other benefits, you may owe tax on part of your SSDI.

The IRS uses a formula called combined income to determine this. Combined income is your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. If that number stays below the threshold for your filing status, you owe no tax on your benefits. If it goes above the threshold, you may owe tax on up to 85 percent of your benefits.

Key Takeaways

  • Combined income—not just your SSDI—determines whether your benefits are taxed, and the threshold depends on whether you file single, married filing jointly, or married filing separately.
  • If you work while receiving SSDI, your wages count toward combined income and may push you over the tax threshold even if your SSDI alone would not.
  • You can request that the Social Security Administration withhold federal income tax directly from your SSDI payments to avoid a tax bill at the end of the year.
  • State income tax on SSDI varies by state; some states do not tax SSDI at all, while others follow the federal rule.

Understanding the Combined Income Threshold

The IRS sets two thresholds based on your filing status. If you file as single or head of household, your threshold is $25,000. If you file as married filing jointly, your threshold is $32,000. If you file as married filing separately, the threshold is $0—meaning any combined income at all may result in tax on your benefits.

To calculate your combined income, add your adjusted gross income (wages, self-employment income, taxable interest, dividends, and other taxable income) plus any nontaxable interest (such as interest from municipal bonds) plus half of your Social Security benefits. The result is your combined income figure.

For example: You file as single. You earn $15,000 from part-time work. You receive $12,000 in SSDI for the year. Half of your SSDI is $6,000. Your combined income is $15,000 + $6,000 = $21,000. Since $21,000 is below the $25,000 threshold, you owe no tax on your SSDI. But if you earned $20,000 instead, your combined income would be $26,000, which exceeds the threshold, and you would owe tax on part of your benefits.

How Much of Your SSDI Is Taxed

If your combined income exceeds the threshold, the amount of SSDI that becomes taxable is calculated in two tiers. 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 your benefits subject to tax.

The IRS provides a worksheet to calculate the exact amount, but the basic rule is this: if your combined income is between the threshold and $9,000 above it (for single filers; $12,000 for married filing jointly), you may owe tax on up to 50 percent of your benefits. If your combined income exceeds that second threshold, you may owe tax on up to 85 percent of your benefits.

This is complex enough that many people use tax software or a tax professional to calculate it correctly. The Social Security Administration publishes a detailed worksheet on its website, and the IRS includes instructions in Publication 915, which is free to read.

Withholding Tax From Your SSDI Payments

If you expect to owe tax on your SSDI, you can ask the Social Security Administration to withhold federal income tax directly from your monthly benefit payment. This prevents a large tax bill when you file your return and spreads the tax cost across the year.

To request withholding, complete Form SSA-521 (Request for Voluntary Federal Income Tax Withholding) and submit it to your local Social Security office, by mail, or online through your my Social Security account. You can choose to withhold 7, 10, 15, or 25 percent of your monthly benefit, or you can specify a flat dollar amount.

You can change your withholding amount or stop withholding at any time by submitting a new Form SSA-521. If you change your income situation during the year—for example, you stop working or start a new job—you can adjust your withholding to match.

State Income Tax on SSDI

Thirteen states tax Social Security benefits, but most do so only if your income is above a certain threshold, and some offer exemptions or deductions that reduce the tax. The states that tax SSDI are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Illinois taxes benefits but only for people over 61.

The rules vary significantly by state. Some states use the same combined income threshold as the federal government. Others set their own thresholds or tax a different percentage of benefits. A few states exempt SSDI entirely if you are below a certain age or income level.

If you live in one of these states, contact your state tax authority or a tax professional to understand your state's specific rules. The Social Security Administration's website lists each state's tax treatment, but the rules change, so verify the current rule before filing.

What Counts as Income for This Calculation

For the combined income calculation, earned income (wages from work or self-employment) counts in full. So does taxable interest, dividends, capital gains, and distributions from retirement accounts. Nontaxable interest also counts—this includes interest from municipal bonds and some U.S. savings bonds.

What does not count: Supplemental Security Income (SSI), Supplemental Nutrition information Program (SNAP) benefits, housing information, or other means-tested benefits. Veterans benefits do not count. Railroad Retirement benefits do count. If you receive a pension from work not covered by Social Security, part of that pension may count depending on how it is structured.

If you are unsure whether a specific income source counts, the IRS Publication 915 lists the rules in detail, or you can ask a tax professional or call the IRS at 1-800-829-1040.

Planning Ahead if You Work While Receiving SSDI

If you are working and receiving SSDI, your wages are the largest factor in determining whether your benefits will be taxed. Even modest part-time earnings can push you over the combined income threshold, especially if you also have other income.

Before taking a job or increasing your hours, calculate what your combined income would be. If it will exceed the threshold, consider requesting tax withholding from your SSDI payment, or set aside money each month to cover the tax you may owe. Some people find it helpful to use tax software in the fall to estimate their tax liability for the year, then adjust their withholding if needed.

Remember that SSDI has its own work rules separate from the tax rules. You can earn up to a certain amount per month (called substantial gainful activity) without losing your SSDI, but that amount is different from the income threshold for taxation. Work with your Social Security representative to understand both rules.

Frequently Asked Questions

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

Not necessarily. If SSDI is your only income and it is below the filing threshold for your age and filing status, you do not have to file. However, if you have any other income—even a small amount of interest or part-time wages—you may be required to file. The IRS website has a filing requirement tool to help you determine whether you must file.

What if I did not withhold taxes and now owe money?

You can set up a payment plan with the IRS if you cannot pay the full amount when you file. The IRS also offers installment agreements that let you pay over time. If you expect this to happen again next year, request tax withholding from your SSDI now to avoid another bill.

Can I reduce my combined income to avoid taxes on my SSDI?

Not directly. You cannot choose not to count income. However, if you have control over when you receive certain income—for example, you can defer a bonus or delay selling an investment—timing that income in a different tax year might help. A tax professional can advise whether this strategy makes sense for your situation.

Does my spouse's income count toward my combined income threshold?

Only if you file a joint return. If you file separately, only your own income counts. If you file jointly, your spouse's income is included in the combined income calculation, which can push you over the threshold even if your own income is low. Some couples find it beneficial to file separately to avoid this, though this depends on your specific situation.

What if I receive both SSDI and SSI?

SSI (Supplemental Security Income) is not taxable and does not count toward your combined income. Only your SSDI counts. However, if you receive both, you must report both on your tax return and calculate the combined income threshold using only the SSDI amount.