Whether your SSDI is taxed depends on your other income

Social Security Disability Insurance (SSDI) is not automatically taxed. You only owe federal income tax on your SSDI if your combined income exceeds a certain threshold. Combined income means your SSDI plus any wages, interest, dividends, pensions, or other income you receive in the same year.

The threshold is low: $25,000 for a single filer, $32,000 for married filing jointly. If you stay below that line, you owe nothing on your SSDI. If you cross it, you may owe tax on up to 85 percent of your benefits, depending on how far over you go.

Most people receiving SSDI alone do not owe tax. The problem arises when you have other income — a part-time job, a pension, investment returns, or a working spouse's income on a joint return.

Key Takeaways

  • You only pay federal income tax on SSDI if your combined income (SSDI plus all other income) exceeds $25,000 single or $32,000 married filing jointly.
  • The amount of SSDI that becomes taxable ranges from 0 to 85 percent, depending on how much your combined income exceeds the threshold.
  • Social Security sends you a Form SSA-1099 each January showing your SSDI for the prior year; use this to calculate whether you owe tax.
  • State income tax on SSDI varies by state — some states tax it, most do not, and a few tax it only under certain conditions.
  • If you owe tax, you can pay it when you file your return or arrange quarterly estimated tax payments with the IRS.

How the taxable portion is calculated

The IRS uses a two-tier formula. First, it adds up your combined income: SSDI plus all other income. Then it subtracts the base amount ($25,000 single, $32,000 married filing jointly). The result is your excess income.

If your excess income is $9,000 or less, up to 50 percent of that excess is taxable. If your excess income is more than $9,000, you add $4,500 (or $6,000 if married filing jointly) plus 85 percent of the amount over $9,000. The result cannot exceed 85 percent of your total SSDI for the year.

Example: You are single, receive $14,000 in SSDI, and earn $12,000 from part-time work. Your combined income is $26,000. Your excess income is $1,000 ($26,000 minus $25,000). You multiply $1,000 by 50 percent, which equals $500. You owe tax on $500 of your $14,000 SSDI.

The IRS Worksheet for calculating taxable benefits appears in the instructions to Form 1040. If the math is complex, a tax preparer or the IRS can walk you through it.

What form you receive and when

In January of each year, Social Security mails you a Form SSA-1099 showing your SSDI for the prior calendar year. The form lists the total amount in Box 5. You use this number to calculate whether you owe tax.

You do not receive a Form SSA-1099 if your SSDI was less than $25 for the year. If you did not receive one by early February, you can request it from Social Security's website or by calling 1-800-772-1213.

Keep the Form SSA-1099 with your tax records. You do not attach it to your return, but you need it to fill out your return accurately and to prove your income if the IRS asks questions later.

State income tax on SSDI

Most states do not tax SSDI at all. However, a handful of states do tax it under certain conditions. Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont have taxed SSDI in the past, though rules change and some have since limited or eliminated the tax.

The rules vary widely. Some states tax SSDI only if your income exceeds a threshold higher than the federal one. Others tax it only if you are under full retirement age. A few states have repealed the tax entirely in recent years.

Contact your state tax authority or a tax preparer in your state to learn the current rule. Do not assume your state taxes SSDI just because you live there — the safest approach is to ask.

What to do if you owe tax on your SSDI

If your calculation shows you owe federal income tax on part of your SSDI, you have two options: pay when you file your return, or arrange quarterly estimated tax payments with the IRS.

Most people receiving SSDI choose to pay when they file. You report the taxable portion of your SSDI on line 5b of Form 1040 (or the equivalent line on your state return). You calculate the tax owed using the standard tax tables, then pay it along with any other tax you owe.

If you expect to owe more than $1,000 in tax for the year, the IRS prefers that you pay quarterly estimated taxes instead. You file Form 1040-ES four times per year (April, June, September, and January). This spreads the payment out and avoids a large bill at tax time.

If you cannot pay the full amount, the IRS offers payment plans. You can set up an agreement to pay in installments over time, though interest and penalties will accrue on the unpaid balance.

Withholding SSDI to cover taxes

You can ask Social Security to withhold a portion of your monthly SSDI payment to cover the tax you expect to owe. This works like tax withholding from a paycheck — Social Security holds back a set amount each month and sends it to the IRS on your behalf.

To set up withholding, complete Form W-4V (Voluntary Withholding Request) and submit it to your local Social Security office or mail it to Social Security. You can choose to withhold 10, 15, 25, or 35 percent of your monthly benefit.

Withholding is optional, but it simplifies tax time. Instead of owing a lump sum in April, you have already paid throughout the year. You can change or cancel your withholding request at any time.

Frequently Asked Questions

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

Yes. If you are close to the income threshold, reducing other income — such as by working fewer hours or delaying a pension — can lower or eliminate your tax bill. However, this strategy only works if the tax savings exceed what you lose in income. A tax preparer can model this for you.

Does Supplemental Security Income (SSI) count toward the income threshold?

No. SSI is never taxed and does not count as income for purposes of calculating whether your SSDI is taxed. Only SSDI, wages, pensions, interest, dividends, and similar income count toward the $25,000 or $32,000 threshold.

What if I made a mistake on my tax return and didn't report SSDI income?

Contact the IRS or a tax preparer to file an amended return (Form 1040-X) for the year in question. The IRS will assess any tax owed plus interest and penalties. Filing the amended return yourself is faster than waiting for the IRS to catch the error.

Do I have to file a tax return if my only income is SSDI below the threshold?

No. If SSDI is your only income and it is below $25,000 (single) or $32,000 (married filing jointly), you are not required to file a federal return. However, filing may be worthwhile if you paid tax through withholding or if you are may have access to to a refundable tax credit.