Social Security Disability and Taxes
Do You Pay Taxes on Social Security Disability?
Many people are unsure whether Social Security Disability Insurance or Supplemental Security Income is considered taxable income.
SSDI vs. SSI – What’s Taxable and What’s Not
Social Security Disability Insurance, or SSDI, is a federal program that provides financial assistance to individuals who cannot work due to qualifying disabling conditions. A portion of SSDI benefits may be taxable if your total income exceeds the thresholds set by the Internal Revenue Service.
Supplemental Security Income, or SSI, is a needs-based federal program that provides aid to disabled individuals and those over 65 with minimal income and resources. Thus, under federal law, SSI is never taxable under any circumstances.
When Are SSDI Benefits Taxable?
SSDI benefits are taxable under certain circumstances. Your total income must exceed specific thresholds laid out by the IRS. For individual filers, either 50 to 85 percent of your benefits may be taxable if your total income exceeds $25,000. For joint filers, the income threshold is $32,000.
Federal Tax Rules for SSDI Recipients
The IRS considers SSDI benefits as part of your income for tax purposes—but only if your total income exceeds certain thresholds. Other disability payments, such as private disability insurance benefits, may be taxed differently depending on how premiums were paid.
The IRS uses combined income to calculate how much of your SSDI benefits are taxable. This figure is your adjusted gross income, or AGI, plus nontaxable interest and half of your SSDI benefits.
For example, if you are single and receive $18,000 in SSDI and earn $10,000 from part-time work, your combined income would be $10,000 in wages, $0 in nontaxable interest, and half of your SSDI—$9,000—for a combined income of $19,000. This amount is under the $25,000 threshold, so your SSDI would not be taxed.
Other income sources that raise your AGI and push you over the threshold include the following:
- Wages or self-employment income
- Unemployment benefits
- Pension or retirement account withdrawals
- Investment income, like dividends, interest, or capital gains
- Spouse’s income, if filing jointly
What Percentage of Your SSDI May Be Taxed?
The IRS will tax either 50 or 85 percent of your SSDI benefits if you exceed the combined income threshold. Your combined income and filing status will determine what portions of your benefits are taxable.
For individuals, including single adults, heads of household, and qualifying widowers, the threshold for combined income is $25,000. This means any amount above this may be taxed. More specifically, 50 percent of benefits are taxable if your combined income is $25,001 to $34,000. If you have a combined income exceeding $34,000, 85 percent of your benefits are subject to taxation.
The same goes for married couples filing jointly. Combined income of less than $32,000 will not be taxed. However, 50 percent of your SSDI benefits are taxable for combined incomes of $32,001 to $44,000. If you have a combined income exceeding $44,000, 85 percent of your benefits are taxable.
State Taxes on SSDI – Do You Owe Anything Locally?
State tax laws vary, so check your local tax laws to determine whether you owe anything locally. Most states do not tax SSDI benefits at all. However, a few states, including Minnesota, Missouri, Montana, Nebraska, and Utah, do tax them. Learn your state’s nuances to determine whether your benefits are taxable at the state level.
Similarly, you can check whether taxation is affected by age, disability status, or income level. These laws are subject to regular updates, and the rules in effect last year may no longer be applicable. Staying up-to-date keeps you informed and prepared for any changes that may occur.
States That Tax SSDI Benefits
These states may tax SSDI, often based on your total income or filing status:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Minnesota and Utah are the only states that tax Social Security benefits regardless of an individual’s income level and marital status.
States That Fully Exempt SSDI
Most states do not tax SSDI, including the following:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
- Alabama
- Arizona
- Arkansas
- California
- Delaware
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maryland
- Massachusetts
- Michigan
- Mississippi
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- Virginia
- Washington, D.C.
- Wisconsin
How to Manage SSDI Taxes Proactively
You can take practical steps to avoid surprise tax bills or underpayments involving your SSDI benefits, including the following:
- Be aware of your combined income and whether it exceeds taxable thresholds
- Review your IRS Form SSA-1099 annually to determine how much you received in benefits, calculate taxable amounts, and accurately report them on your tax return.
- Track all income sources to ensure your combined income does not unexpectedly push your SSDI into the taxable range.
- Seek professional support if your finances are more complex, especially in a state that may tax SSDI.
Should You Request Federal Tax Withholding?
Estimating and Paying Quarterly Taxes
If you receive SSDI benefits in addition to income from part-time work, retirement accounts, investments, or other sources, you might need to pay estimated taxes to avoid a surprise tax bill or IRS penalties.
Social Security does not withhold taxes unless you request it. Meanwhile, other sources may not withhold enough. Because of this, if you owe more than $1,000 in federal tax when you file, the IRS may charge penalties for underpayment. Making estimated, quarterly payments helps you avoid owing a lump sum at tax time.
How Disability Back Pay Is Taxed
Taxation on disability back pay is a commonly misunderstood issue. It is especially relevant for people receiving a lump sum after approval. Back pay is a lump sum payment of SSDI benefits you were entitled to during the waiting period while your application or appeal was in process. It can cover several months, or even several years, of unpaid benefits.
Can You Spread Back Pay Over Previous Tax Years?
While you receive the back pay in one year, it typically represents income owed over multiple years. To prevent unfair taxation, the IRS lets you spread the tax liability over the years for which the benefits apply, using a rule called a lump-sum election.
A lump-sum election works like this:
- Calculate what your taxable SSDI would have been in each year that the back pay applies.
- Then, compare the total tax to what you would have paid if the entire amount were taxed in one year.
You may owe taxes unless the SSA automatically withheld taxes through Form W-4V. Consider setting aside part of your lump sum or using some to make an estimated tax payment.
What To Do if You Receive a Large Lump Sum
If you receive a large lump sum, we encourage you to consult a tax professional. These payments can span multiple years, making your taxes more complex than usual. Getting professional help can minimize your tax burden and prevent you from overpaying.
You can review IRS Publication 915 to better understand how Social Security benefits are taxed, including how to apply the lump-sum election. Similarly, you can use Form SSA-1099 sent by the SSA to glean your total SSDI benefits, how much was back pay, and what years the payments apply to. You can then use this information to allocate income to the correct years.
SSDI, Other Income, and Filing Jointly
Spousal or household income affects SSDI taxation. As a result, joint filers must be aware of specific factors that influence their benefits. To determine your combined income and whether your SSDI benefits are taxable, the IRS looks at your own income and that of your spouse if you file jointly. Taxes apply as follows:
- If your combined income is less than $32,000, your SSDI benefits are generally not taxable.
- If your combined income is between $32,000 and $44,000, 50 percent of your SSDI benefits are taxable.
- If your combined income exceeds $44,000, 85 percent of your SSDI benefits are taxable.
Filing jointly can push your combined income over the threshold, making SSDI partially taxable even if your income alone would not.
What if You Also Have Wages or Retirement Income?
In scenarios where SSDI recipients who work part-time, collect a pension, or draw IRA distributions, these additional earnings can increase combined income. If your combined income exceeds the IRS thresholds, 50 or 85 percent of your SSDI benefits become taxable.
Get Help With SSDI Benefits
SSDI benefits and taxation can be confusing, especially without help from a professional advocate. Our compassionate and knowledgeable team at Disability Advice can help you better understand SSDI benefits, how to apply for approval of your claim, and how taxation may apply to your specific situation. Call us today to schedule an initial consultation.
Frequently Asked Questions About SSDI and Taxes
Do I Have To File Taxes if I Only Receive SSDI?
Most individuals who receive SSDI benefits do not have to file a federal tax return because their income falls below the IRS filing threshold. However, benefits may be taxable if your total combined income exceeds the combined income threshold.
How Do I Get a Tax Form for My SSDI Benefits?
Every January, those who received SSDI benefits in the previous year receive Form SSA-1099 from the SSA. This form shows the amount of benefits you received and will be used to file your taxes and determine if any are taxable.
Can I Claim the EITC or Child Tax Credit While on SSDI?
Yes, you can claim the EITC or Child Tax Credit while receiving SSDI. The Child Tax Credit is not based on earned income alone; you can claim it as long as you have a qualifying child and meet IRS income and filing requirements.
Is My SSDI Income Protected From Tax Levies or Garnishments?
Yes, SSDI benefits are typically protected from garnishment and most tax levies. This is because SSDI is considered federal benefit income, meaning it is generally exempt from seizure by creditors. However, state laws vary, and some do allow garnishment of SSDI benefits under limited circumstances.
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- Ensure you have all documents
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- Do You Pay Taxes on Social Security Disability?
- Federal Tax Rules for SSDI Recipients
- State Taxes on SSDI – Do You Owe Anything Locally?
- How to Manage SSDI Taxes Proactively
- How Disability Back Pay Is Taxed
- SSDI, Other Income, and Filing Jointly
- Get Help With SSDI Benefits
- Frequently Asked Questions About SSDI and Taxes
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“Professionalism at its best. From intake to getting my claim started, they are the ones you need. 100% recommend to everyone.”
Pablo P.
“Having never gone through this process before, it was very easy and straightforward. VERY professional and polite.”
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