Most people on SSDI pay no federal income tax on their benefits, but some do

Whether you owe federal income tax on your SSDI payments depends on your total income for the year. If SSDI is your only income, you almost certainly owe nothing. If you have other income — wages, self-employment earnings, interest, pensions, or other retirement benefits — the IRS counts part or all of your SSDI as taxable income using a formula called the "combined income" test.

The threshold is low: if your combined income exceeds $25,000 (married filing jointly) or $34,000 (married filing separately), you may owe tax on up to 85 percent of your SSDI. For single filers, the threshold is $25,000. These thresholds have not changed since 1984 and do not adjust for inflation.

You do not automatically owe tax just because you crossed the threshold. The IRS uses a two-tier calculation that determines how much of your benefit is actually taxable. Many people with income above the threshold still owe nothing because the calculation protects a portion of the benefit.

Key Takeaways

  • If SSDI is your only income, you will not owe federal income tax on it, and you do not need to file a return.
  • If you have other income, the IRS uses your "combined income" (SSDI plus half of SSDI plus all other income) to determine if any benefit is taxable.
  • The income thresholds are $25,000 for single filers and $34,000 for married filing separately; married filing jointly is $32,000.
  • You may owe tax on up to 50 percent of your benefit in the first tier and up to 85 percent in the second tier, depending on how far your income exceeds the threshold.
  • State income tax on SSDI varies by state; some states tax it, most do not, and a few exempt it only for people over 59½.

How the IRS calculates taxable SSDI using combined income

The IRS calls it "combined income," and it is not the same as your adjusted gross income. Combined income is calculated as: your adjusted gross income plus nontaxable interest plus half of your SSDI benefit.

Once you know your combined income, the IRS applies two tiers. In the first tier, if your combined income exceeds the base threshold ($25,000 single, $32,000 married filing jointly), you may owe tax on up to 50 percent of your SSDI. In the second tier, if your combined income exceeds $34,000 (single) or $44,000 (married filing jointly), you may owe tax on up to an additional 35 percent of your SSDI, for a total of up to 85 percent.

The calculation is complex, and the IRS worksheet in Publication 915 walks through it step by step. Many tax software programs and tax preparers handle this automatically. If you are unsure whether you owe tax, the Social Security Administration's website includes a tax withholding estimator, and a tax professional can review your situation for a fee.

When you must file a federal return even if you owe no tax

You are required to file a federal return if your gross income meets the filing threshold for your age and filing status, even if you owe no tax. For 2024, the threshold for a single person under 65 is $14,600; for someone 65 or older, it is $18,150. These thresholds change each year.

SSDI counts toward this threshold. If you are 62 and single, receive $15,000 in SSDI, and have no other income, you must file a return because your gross income exceeds $18,150. You will owe no tax, but filing is required.

Filing even when you owe nothing can be worth your time: you may be due a refund if taxes were withheld from other income, or you may be due the Earned Income Tax Credit or other refundable credits. The IRS does not send you money you are owed unless you file.

How to report SSDI on your tax return

The Social Security Administration sends you a Form SSA-1099-Soc Sec by January 31 each year showing the total SSDI you received. You report this amount on line 5a of Form 1040 (the main federal return form). You then follow the IRS worksheet in Publication 915 to determine how much, if any, is taxable. The taxable amount goes on line 5b.

If you use tax software, you enter the amount from box 5 of your SSA-1099, and the software calculates the taxable portion for you. If you file by hand or with a tax preparer, they will use the Publication 915 worksheet.

You must file by April 15 of the year following the tax year. If you cannot file by then, you can request an extension from the IRS, though an extension to file is not an extension to pay any tax owed.

State income tax on SSDI varies widely

Most states do not tax SSDI at all. However, some states do. Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont tax SSDI the same way the federal government does, using the combined income test. Illinois taxes SSDI but only for people under 61; once you turn 61, it is exempt. Mississippi taxes SSDI only for people under 59½.

If you live in a state that taxes SSDI, you will file a state return and report your SSDI using your state's rules, which may differ slightly from the federal calculation. Your state tax department's website or a tax preparer familiar with your state can walk you through the state-specific rules.

If you move to a different state during the year, you may owe tax to both states for part of the year. Some states offer credits for taxes paid to other states, but you will need to file in both.

Tax withholding and estimated payments

The Social Security Administration does not withhold federal income tax from SSDI payments automatically. If you expect to owe tax, you have two options: request that Social Security withhold a flat amount from your monthly payment, or make quarterly estimated tax payments to the IRS.

To request withholding, complete Form W-4V and send it to your local Social Security office or submit it online through your my Social Security account. You can choose to have 7, 10, 12, or 22 percent of your benefit withheld. This is a simple way to avoid owing a large amount when you file.

If you prefer not to withhold from SSDI, you can make quarterly estimated tax payments directly to the IRS using Form 1040-ES. Payments are due April 15, June 15, September 15, and January 15. Missing a payment can result in penalties and interest, so this route requires more attention than withholding.

What happens if you do not file or pay taxes owed

If you owe tax and do not file or pay, the IRS can assess penalties and interest. The failure-to-file penalty is usually 5 percent of the unpaid tax per month, up to 25 percent. The failure-to-pay penalty is 0.5 percent per month. Interest accrues daily at a rate set quarterly by the IRS (currently around 8 percent annually).

If you cannot pay what you owe, you can request a payment plan from the IRS. Short-term plans (120 days or less) are free; long-term installment agreements have a setup fee and monthly payment fee. You can also request an offer in compromise if you truly cannot pay, though the IRS approves these rarely.

If you realize you owe tax from a prior year, filing late is still better than not filing. The IRS can pursue collection for up to 10 years, but filing stops some penalties from accruing and may lower what you ultimately owe.

Frequently Asked Questions

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

Only if your gross income (including SSDI) meets the filing threshold for your age and filing status. For 2024, that is $18,150 for a single person 65 or older. If SSDI is your only income and it is below that threshold, you do not have to file. However, filing may get you a refund if taxes were withheld from other income.

Can I reduce my taxable SSDI by making charitable donations?

No. Charitable donations reduce your taxable income, but they do not reduce the combined income calculation that determines how much SSDI is taxable. The combined income test is separate and uses a different formula. Donations can still lower your overall tax bill, but they will not change the amount of SSDI subject to tax.

What if I received SSDI for only part of the year?

Social Security will report the amount you actually received on your SSA-1099. You use that amount in the combined income calculation. If you started or stopped receiving SSDI mid-year, your combined income for that year will reflect only the months you received it.

Does working part-time while on SSDI change my tax situation?

Yes. Wages from work count as income in the combined income calculation. Even if you are under the Social Security earnings limit (which allows some work without losing benefits), the wages still count toward your combined income for tax purposes. This may push you into owing tax on your SSDI.

If I owe tax on SSDI, does it affect my benefits?

No. Owing income tax does not change your SSDI payment amount or your may be able to access. The tax is separate from the benefit. However, if you owe back taxes, the IRS can offset your refund or garnish other income to collect.