You may have to file taxes on SSDI benefits, even though the benefits themselves are not taxable income

Social Security Disability Insurance (SSDI) payments are not counted as income for federal tax purposes. However, you may still be required to file a tax return if your combined income exceeds a certain threshold. Combined income includes your SSDI benefits plus other income sources—wages, interest, dividends, pensions, or other benefits. The IRS uses this combined figure to decide whether you owe taxes, not the SSDI amount alone.

The threshold depends on your filing status and whether you are married. For a single person, combined income over $25,000 means you may have to file. For married people filing jointly, the threshold is $32,000. These figures have not changed in recent years, though they can be adjusted by Congress. If your combined income falls below these amounts, you generally do not have to file a federal return.

The reason the IRS looks at combined income is that it wants to know whether any of your SSDI is subject to taxation. Up to 85 percent of your SSDI benefits can be taxable if your combined income is high enough. This is a specific rule that applies only to Social Security benefits (both SSDI and retirement benefits). Most people on SSDI do not reach the income level where benefits become taxable, but the rule exists and you need to know whether it applies to you.

Key Takeaways

  • SSDI payments themselves are never taxable, but you may have to file a return if your combined income (SSDI plus other income) exceeds $25,000 for single filers or $32,000 for married couples filing jointly.
  • Combined income includes wages, self-employment income, interest, dividends, pensions, and other benefits—anything the IRS counts as income.
  • Up to 85 percent of your SSDI can become taxable if your combined income is high enough, which is rare but possible if you have substantial other income.
  • You can use IRS Publication 915 to calculate whether any of your benefits are taxable, or ask a tax preparer to do it for you.

How the IRS calculates combined income

Combined income is not the same as adjusted gross income (AGI). The IRS adds your SSDI benefits to your AGI and then adds back certain deductions to get the combined income figure. Specifically, the formula is: your AGI plus tax-exempt interest plus half of your SSDI benefits. This combined figure is what determines whether you have to file and whether any benefits are taxable.

For example, suppose you received $12,000 in SSDI and earned $15,000 in wages. Your AGI would be $15,000. Half of your SSDI is $6,000. Combined income is $15,000 plus $6,000, which equals $21,000. Since $21,000 is below $25,000, you would not have to file a return based on this income alone. But if you also had $5,000 in interest income, combined income would be $26,000, and you would have to file.

The "half of SSDI" rule is the part that confuses most people. You are not paying taxes on half your benefits. The IRS is straightforward using half your benefit amount as a measure of how much other income you have. It is a formula designed to catch people whose total resources are high enough that they might owe tax on some benefits.

When SSDI benefits themselves become taxable

If your combined income exceeds the base amount for your filing status, some of your SSDI may be taxable. The base amount is $25,000 for single filers and $32,000 for married couples filing jointly. The amount of your benefits that becomes taxable depends on how far above the base amount your combined income goes.

The calculation is complex, and the IRS provides a worksheet in Publication 915 to work through it. In general, the higher your combined income above the base amount, the more of your benefits become taxable—up to a maximum of 85 percent. Very few people on SSDI reach the income level where benefits become taxable, because it requires substantial income from other sources. If you have wages from work, investment income, a pension, or other benefits, you may be closer to this threshold than you think.

If any of your benefits are taxable, you will owe federal income tax on that portion. You may also owe state income tax, depending on your state. Some states do not tax Social Security benefits at all, while others follow the federal rule. Check your state's tax rules or ask a tax preparer about your state's treatment of SSDI.

Who must file even if they owe no tax

You may have to file a return even if you do not owe any tax. The IRS requires you to file if your combined income exceeds the threshold for your filing status, regardless of whether any of your benefits are actually taxable. Filing is the way the IRS verifies that you do not owe tax on your benefits.

Additionally, if you had federal income tax withheld from other income sources (such as wages or a pension), you may want to file to claim a refund of that withheld tax. Even if you do not owe tax on your SSDI, you might be due a refund. Filing is also necessary if you want to claim the Earned Income Tax Credit (EITC), which is available to some people with low income from work.

How to report SSDI on your tax return

If you file a return, you will report your SSDI benefits on Form 1040 (the main federal income tax form) and use the worksheet in IRS Publication 915 to determine how much, if any, is taxable. You do not report SSDI on a separate form; it goes on the main return. The Social Security Administration sends you a Form SSA-1099 each January showing the total SSDI you received in the previous year. Use this form to fill in the benefit amount on your return.

If you use tax preparation software, the software will walk you through the calculation and ask you for your SSDI amount. If you use a tax preparer, bring your SSA-1099 and any other income documents. A tax preparer can calculate whether any of your benefits are taxable and file your return correctly. Many tax preparation services offer free filing for people with low income; the IRS maintains a list of free providers on its website.

What happens if you do not file when you should

If your combined income exceeds the threshold and you do not file, the IRS may contact you. The agency does not automatically know your SSDI amount unless you report it, so there is no automatic penalty for not filing. However, if the IRS discovers that you should have filed and did not, you may face a failure-to-file penalty on any tax you owe. The penalty is usually 5 percent of the unpaid tax for each month the return is late, up to 25 percent.

More importantly, not filing can delay any refund you are due. If you had taxes withheld from wages or other income, you will not receive that refund unless you file a return claiming it. You have three years from the original due date to claim a refund, but the sooner you file, the sooner you get your money back.

State tax rules for SSDI

Thirteen states tax Social Security benefits to some degree: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. The rules vary by state. Some follow the federal rule exactly; others have different thresholds or allow partial exemptions. A few states exempt SSDI specifically while taxing retirement benefits.

If you live in one of these states and your combined income exceeds your state's threshold, you may owe state income tax on some of your SSDI. You will need to file a state return in addition to your federal return. Contact your state tax authority or a tax preparer to learn your state's specific rules. Many states provide free tax preparation services for people with low income, similar to the federal program.

Frequently Asked Questions

Do I have to file taxes if I only receive SSDI and no other income?

No. If SSDI is your only income, your combined income is below the filing threshold ($25,000 for single filers), and you do not have to file a federal return. However, if you live in a state that taxes Social Security benefits, check your state's rules.

What if I earned wages and received SSDI in the same year?

You must add your wages to your SSDI to calculate combined income. If the total exceeds $25,000 (for single filers), you have to file. Use the combined income formula: wages plus half your SSDI benefits. If this exceeds the threshold, file a return.

Can I use the IRS Free File program to file my SSDI taxes?

Yes, if your income is below the IRS income limit for Free File (usually around $60,000 to $70,000, depending on the year). The IRS website lists free tax preparation options. Many community organizations also offer free tax help for people with low income.

What is Form SSA-1099 and when do I get it?

Form SSA-1099 is sent by the Social Security Administration each January and shows the total SSDI you received in the previous calendar year. Use this amount when you file your tax return. If you do not receive it by early February, contact Social Security to request a copy.

If some of my SSDI is taxable, do I owe the tax on the entire benefit amount?

No. You only owe tax on the portion of your benefits that the IRS determines is taxable, which can be up to 85 percent. Use IRS Publication 915 or a tax preparer to calculate the exact taxable amount. Most people on SSDI do not reach the income level where any benefits become taxable.