Taxation of Social Security Disability Insurance (SSDI) Benefits

Social Security Disability Insurance (SSDI) benefits can be taxed, but it depends on your overall income. The IRS considers your combined income to determine whether you need to pay taxes on your SSDI benefits. Combined income is the total of your:

• Adjusted Gross Income (AGI)
• Non-taxable interest
• Half of your SSDI benefits

If your combined income exceeds a certain threshold, a portion of your SSDI benefits may be taxable.

Income Limits for SSDI Taxation

For individuals receiving SSDI, the threshold for taxable benefits is based on your filing status and combined income:

• If you file as an individual:
• Up to $25,000 in combined income: Your SSDI benefits are not taxed.
• Between $25,000 and $34,000: Up to 50% of your SSDI benefits may be taxable.
• Over $34,000: Up to 85% of your SSDI benefits may be taxable.
• If you are married and file jointly:
• Up to $32,000 in combined income: Your SSDI benefits are not taxed.
• Between $32,000 and $44,000: Up to 50% of your SSDI benefits may be taxable.
• Over $44,000: Up to 85% of your SSDI benefits may be taxable.
• If you are married and file separately:
• SSDI benefits are generally taxable, even if your combined income is below the threshold, unless you lived apart from your spouse for the entire year.

Taxation of Supplemental Security Income (SSI) Benefits

Unlike SSDI, Supplemental Security Income (SSI) benefits are not subject to federal income tax. SSI is a need-based program for individuals with limited income and resources, and because SSI benefits are not considered taxable income by the IRS, you don’t have to worry about paying federal taxes on them.

State Taxes on SSDI Benefits

While SSDI benefits are subject to federal income tax, it’s important to note that some states tax Social Security Disability benefits as well. These states may have their own income tax rules regarding SSDI benefits:

• States that do not tax SSDI benefits: California, New Jersey, and others.
• States that do tax SSDI benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Check your state’s tax guidelines to see if your SSDI benefits are taxable at the state level.

Reporting SSDI Benefits on Your Tax Return

If your SSDI benefits are taxable, the SSA will send you a Form SSA-1099 each year, showing the total amount of benefits you received. You will need this form to accurately report your SSDI income on your tax return. Even if a portion of your benefits is taxable, you may be able to reduce your taxable income by taking advantage of tax credits or deductions available to you.