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Your filing status and income determine whether you pay taxes on SSDI benefits. Social Security Disability Insurance (SSDI) benefits can be subject to federal income tax, but many SSDI recipients don’t pay federal taxes on benefits.
The Internal Revenue Service (IRS) uses the same federal rules for taxable Social Security benefits to determine whether SSDI is taxable. If SSDI is your only income, your benefits most likely won’t be taxable because your income is below the IRS threshold.
However, wages, pension and investment income, as well as a spouse’s income increase your combined income and might make part of your SSDI taxable.
This article explains the answer to “do you pay taxes on SSDI” depending on your filing status.
To determine whether any of your SSDI may be taxable, start by calculating your combined income.
The basic calculation: Adjusted gross income + tax-exempt interest + one-half of your SSDI payments = combined income.
Example: If you receive $18,000 in SSDI benefits, $9,000 counts toward this calculation. Then add your adjusted gross income and any tax-exempt interest to $9,000.
Once you have your combined income, compare it with the IRS base amount and higher threshold for your filing status.
Adjusted gross income (AGI) is your income after allowed IRS deductions. It can include wages, taxable pension income, and taxable investment income.
Tax-exempt interest also counts toward your combined income, even though the interest itself isn’t federally taxable.
The calculation includes half of your SSDI benefits, but that doesn’t mean half is automatically taxable. What matters is where your combined income lands in federal income thresholds for your filing status.
Current IRS guidance uses the following federal income thresholds when determining whether SSDI benefits may be taxable.
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Get EvaluationDepending on your combined income, up to 50% or up to 85% of your SSDI benefits may be included in taxable income.
If your combined income falls between the lower and higher thresholds, up to 50% may be taxable. If it exceeds the higher threshold, up to 85% may be taxable.
Those percentages are not tax rates. They’re limits on the share of your SSDI treated as taxable Social Security benefits. The IRS calculation determines the actual taxable portion.
Example: If $8,000 of your SSDI is taxable, you don’t owe $8,000 to the IRS. The $8,000 is included in your taxable income, and the amount of tax you owe depends on your full federal tax return.
A single filer receives $20,000 in SSDI benefits and $17,000 in other income. They have no tax-exempt interest.
Half of the SSDI benefit is $10,000, so combined income is: $17,000 + $10,000 = $27,000
That falls between the $25,000 and $34,000 thresholds for a single filer, so up to 50% of the SSDI benefits may be taxable. The IRS calculation determines the actual amount.
A married couple files jointly. One spouse receives $24,000 in SSDI benefits, and the other earns $35,000 in wages. They have no tax-exempt interest.
Half of the SSDI benefits is $12,000, so their combined income is: $35,000 + $12,000 = $47,000
That is above the $44,000 higher threshold for married couples filing jointly. Up to 85% of the SSDI benefits may be taxable.
This example also shows why a spouse’s income matters. When a couple files jointly, the spouse’s wages are included in the household’s combined income calculation.
SSDI back pay can include benefits for months in earlier tax years because it typically takes six months to over a year to get approved. Plus, you may have up to a year of retroactive benefits if eligible. The IRS allows a special calculation called the lump-sum election in these cases.
You report the full lump-sum payment on the federal tax return for the year you received it. You don’t move the back pay to earlier tax returns.
Publication 915 explains how to use the lump-sum election and income from earlier years to calculate the taxable portion of SSDI back pay.
When the payment covers several years, the calculation can be more complex. If you need help using the Publication 915 worksheets, ask a qualified tax professional to help you calculate the taxable portion of your back pay.
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Get EvaluationBefore you use an IRS worksheet or tax tool, gather:
The IRS offers several tools, depending on what you need:
If you expect to owe federal income tax on your SSDI, you can choose to have tax withheld from your benefits or make quarterly estimated tax payments. The IRS provides Form W-4V for voluntary withholding.
SSI is not federally taxable because it is a need-based assistance program. The IRS treats payments from government programs based on financial need as public assistance rather than taxable income.
This article focuses on federal income tax. State tax rules for SSDI vary.
To find out whether your state taxes SSDI benefits, check your state tax agency’s current guidance or ask a qualified tax professional.
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