The federal tax rate on SSDI depends on your other income

There is no single tax rate that applies to all SSDI payments. Instead, the Social Security Administration uses a formula that looks at your combined income—which includes your SSDI, any wages you earn, interest, dividends, and other sources. Depending on that total, between 0% and 85% of your SSDI payment may be subject to federal income tax.

The formula is built into how Social Security calculates your tax liability, not something you choose. If you owe taxes on part of your SSDI, you will see it reported on your annual Social Security statement and on the Form SSA-1099-B that Social Security sends you each January.

State income tax is separate. Some states do not tax SSDI at all, while others tax it the same way the federal government does. A few states have their own rules. You will need to check your state's tax authority to know whether your state taxes SSDI.

Key Takeaways

  • Federal tax on SSDI ranges from 0% to 85% of your payment, depending on how much other income you have.
  • Social Security uses a "combined income" formula that includes SSDI plus wages, interest, pensions, and other money you receive.
  • You receive a Form SSA-1099-B each January showing how much of your SSDI is taxable, and you report this on your federal tax return.
  • State tax treatment of SSDI varies widely—some states do not tax it, while others follow federal rules or have their own thresholds.

How the federal tax formula works

Social Security uses two thresholds to determine how much of your SSDI is taxed. Your combined income is calculated as your Adjusted Gross Income (AGI) plus nontaxable interest plus half of your SSDI payment.

If your combined income is below $25,000 (or $32,000 if you are married filing jointly), none of your SSDI is taxed. If your combined income is between $25,000 and $34,000 (or $32,000 and $44,000 for married filing jointly), up to 50% of your SSDI may be taxable. If your combined income exceeds $34,000 (or $44,000 for married filing jointly), up to 85% of your SSDI may be taxable.

These thresholds have not changed since 1984. They do not adjust for inflation, which means more people fall into the taxable range each year as wages and other income sources grow.

What counts as income for this calculation

The combined income formula includes more than just your SSDI. It counts wages from work, self-employment income, interest from savings accounts and bonds, dividends from stocks, rental income, pension payments, and distributions from retirement accounts like IRAs or 401(k)s.

Some income does not count. Supplemental Security Income (SSI) is not included. Certain tax-exempt interest (such as interest from municipal bonds) is included in the formula even though it is not taxable income. Veterans' benefits are not counted. Gifts and inheritances are not counted.

If you are married and file jointly, Social Security combines both spouses' income to determine the tax rate, even if only one spouse receives SSDI. If you are married but file separately, different (usually higher) thresholds explore, and you should consult a tax professional.

How to report SSDI on your tax return

In January, Social Security sends you a Form SSA-1099-B showing the total SSDI you received in the previous year and how much is taxable. You report this on your federal tax return using Form 1040 and Schedule 1 (Additional Income and Adjustments to Income).

If you do not receive a Form SSA-1099-B by early February, you can request one from Social Security's website or by calling 1-800-772-1213. You need this form to file your return accurately, even if you think you owe no tax.

If you owe federal income tax on your SSDI, you can pay it when you file your return, or you can ask Social Security to withhold taxes from your monthly payment. To set up withholding, complete Form W-4V (Voluntary Withholding Request) and send it to your local Social Security office or mail it to Social Security.

State tax treatment varies widely

Thirteen states currently do not tax SSDI at all: Alabama, Alaska, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, and Nevada. If you live in one of these states, you owe no state income tax on your SSDI payment.

Most other states follow the federal formula—if your SSDI is taxable under federal rules, it is also taxable under state rules. However, some states have different thresholds or different calculations. Colorado, Connecticut, Kansas, and Montana have their own rules that sometimes result in lower state taxes than federal taxes.

A few states tax SSDI more heavily than the federal government does. You can find your state's specific rules by contacting your state's department of revenue or tax authority. Many state websites have a section dedicated to SSDI and retirement income taxation.

What to do if you think you will owe taxes

If your combined income is high enough that part of your SSDI will be taxed, you have two main options: pay the tax when you file your return, or have Social Security withhold it from your monthly payment.

Withholding is often simpler because it spreads the tax across the year rather than requiring a large payment in April. To request withholding, fill out Form W-4V and return it to Social Security. You can change your withholding amount or stop withholding at any time by submitting a new form.

If you do not withhold and do not pay taxes as you go, you may owe a penalty when you file. The IRS charges penalties for underpayment of estimated tax if you owe more than a certain amount. A tax professional or the IRS Free File program can help you figure out whether you need to make quarterly estimated tax payments.

Frequently Asked Questions

Can I reduce the amount of SSDI that gets taxed?

You cannot change the tax formula itself, but you can reduce your combined income by lowering other sources of income. For example, delaying a pension payment or IRA withdrawal to a year when your SSDI is lower might reduce your tax burden. A tax professional can help you plan this strategy.

Does working while on SSDI affect my tax rate?

Yes. Wages from work count as income in the combined income formula, so earning money while on SSDI increases your combined income and may push more of your SSDI into the taxable range. However, you may still come out ahead financially even after paying taxes on the additional SSDI.

What if I am married and my spouse does not receive SSDI?

If you file jointly, Social Security combines both spouses' income to calculate the tax rate on your SSDI. Your spouse's wages, interest, and other income all count toward the thresholds. If you file separately, different rules explore and you should consult a tax professional.

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

You must file a return if your total income (including taxable SSDI) exceeds the standard deduction for your filing status. In 2024, the standard deduction for a single person is $14,600 and for married filing jointly is $29,200, but these amounts change each year. Check the IRS website or Form 1040 instructions for the current year.