Social Security Disability Insurance (SSDI) provides benefits to those who can no longer work due to a disability. An estimated 10 million Americans currently receive SSDI benefits. With tax season approaching, one common question SSDI recipients have is whether these benefits are taxable. Below we’ll explore what portion of SSDI benefits are taxed, who has to pay taxes on benefits, and how to calculate how much of your benefits may be taxable.
Are SSDI Benefits Taxable?
The short answer is yes, SSDI benefits can be taxable. However, not all SSDI recipients will owe taxes on their benefits. Only a portion of SSDI benefits are subject to federal income taxes for certain recipients. On average, about 40% of SSDI recipients have to pay some federal income taxes on their benefits.
SSDI benefits also are not subject to state or local income taxes in most states. Only 13 states tax SSDI benefits to some extent. The majority of states follow federal tax rules and do not tax disability benefits.
What Portion of SSDI Is Taxable?
Whether your SSDI benefits will be taxed depends primarily on your total income. According to the IRS, if the sum of your adjusted gross income, nontaxable interest, and half of your SSDI benefit exceeds the base amount for your filing status, then a portion of your benefits become taxable.
Here are the base amounts to determine if your SSDI benefits may be taxed for 2022:
- Single, Head of Household, Qualifying Widow(er): $25,000
- Married Filing Jointly: $32,000
- Married Filing Separately: $0
If your income exceeds the base amount, then up to 50% of your SSDI benefits may be subject to federal income taxes. If your income far exceeds the base amounts above, then up to 85% of your benefits may be taxed.
Who Has to Pay Taxes on SSDI?
In general, you may owe taxes on your SSDI benefits if you:
- File as single, head of household, or qualifying widow(er) with income above $25,000
- File married filing jointly with income above $32,000
- File as married filing separately (special rules apply)
However, even if your income exceeds the thresholds, you may not actually end up owing any taxes depending on the calculations. About 60% of SSDI recipients do not have to pay federal income taxes on benefits.
Some recipients who may be exempt from paying taxes on SSDI include:
- Those whose total income falls under the IRS thresholds above
- Recipients who have high unreimbursed medical expenses that reduce taxable income
- Lower-income recipients who have no tax liability after standard deductions and personal exemptions
So you can see it depends heavily on your specific tax situation whether your SSDI benefits will be taxed.
How to Calculate Taxes on SSDI
Figuring out whether your SSDI benefits will be taxed and how much you may owe can be complicated. Here is an overview of how the IRS calculates taxes on Social Security benefits:
- Add up your adjusted gross income, nontaxable interest income, and half of your annual SSDI benefit.
- Compare this total to the IRS base threshold for your filing status.
- If your total is above the threshold, then determine the lesser of either:
- 50% of your SSDI benefit
- 50% of the excess over the threshold (your total minus the IRS threshold)
Let’s look at an example:
- John files as single
- His adjusted gross income is $20,000
- He has $5,000 in nontaxable interest
- John received $12,000 in SSDI benefits
- His total income is $20,000 + $5,000 + $6,000 (half his SSDI) = $31,000
- This exceeds the $25,000 single threshold by $6,000.
- The lesser of:
- 50% of his $12,000 benefit = $6,000
- 50% of his $6,000 excess over the threshold = $3,000
- $3,000 is the taxable portion of his benefit
- His total taxable income is $20,000 + $3,000 = $23,000
- He calculates and pays income tax on $23,000
So in this example, John only owes income tax on $3,000 of his total $12,000 SSDI benefit for the year.
Tax Forms to File
If you do owe taxes on your SSDI benefits, you will need to file the following with your federal tax return:
- Form SSA-1099 – This form is sent each year by the Social Security Administration to SSDI recipients. It shows your total benefits paid for the year. You need this to calculate the taxable portion.
- Form 1040 – You report your taxable portion of SSDI benefits and calculate total tax owed on your 1040 form.
- Schedule R – If you are a married filer who received SSDI, you must also complete Schedule R to calculate the taxable benefit.
Make sure you receive your SSA-1099 form prior to filing your taxes. If you have not received it by early February, follow up with the SSA to request a copy.
Strategies to Reduce Taxes on SSDI
If your income exceeds the thresholds, you may still be able to reduce or eliminate taxes on your SSDI using these strategies:
- Claim deductions – Take all deductions you qualify for to reduce your adjusted gross income. Common deductions include the standard deduction, itemized deductions, IRA contributions, etc.
- Contribute to health savings accounts (HSAs) – HSA contributions reduce your taxable income so can help lower the amount of your benefits that are taxed.
- Use tax credits – Tax credits like the earned income tax credit directly lower your tax liability, which reduces the overall taxes you pay on benefits.
- Track medical expenses – Your unreimbursed medical expenses that exceed 7.5% of your income can be deducted from your taxable income. So keep good records of your healthcare costs.
Carefully claiming all deductions and tax credits can potentially lower your total income below the thresholds to avoid taxes on SSDI. Consulting a tax professional may help maximize your savings.
Other Rules and Considerations
Here are some other important notes about taxes on SSDI benefits:
- Up to 85% of benefits can be taxed for very high-income earners above an additional threshold.
- Special rules apply if you are married filing separately.
- State or local taxes may also apply depending on where you live.
- Taxes are withheld from SSDI only if requested using Form W-4V.
- Taxable benefits do count toward determining if you meet the IRS filing requirement threshold.
- You can make quarterly estimated tax payments if you will owe taxes on your benefits.
- Disability benefits paid from private insurance or workers compensation are fully taxable.
Consult IRS Publication 915 for full details on the taxability of Social Security benefits.
Frequently Asked Questions
Below are answers to some common questions about taxes on SSDI benefits:
Are SSDI benefits taxed at the same rate as regular income?
Yes, the taxable portion of your SSDI benefits is taxed the same as ordinary income based on your federal income tax bracket. It is not taxed differently.
Can I deduct medical expenses from the taxable portion of my SSDI?
No, you cannot deduct medical expenses from the taxable portion of your benefits specifically. However, you may be able to deduct qualified unreimbursed medical expenses that exceed 7.5% of your adjusted gross income, which can lower your overall taxable income.
Are SSDI benefits counted as income when determining eligibility for other programs?
Sometimes. Benefits may impact eligibility for certain assistance programs or subsidies. For example, SSDI is considered income when determining eligibility for Medicaid and food stamps in most states.
Can I exclude SSDI from income entirely for taxes?
No, there is no provision to fully exclude SSDI benefits from your taxable income. If your total income exceeds the IRS thresholds, a portion of your benefits will be taxable. However, careful tax planning can sometimes reduce your total taxable income low enough to eliminate taxes on benefits.
Do I have to pay state taxes on my benefits in all states?
No, many states do not tax Social Security disability benefits at all. Only 13 states levy a tax on SSDI, which is often much lower than federal income tax rates. Check your specific state’s tax rules to see if your benefits will be taxed at the state level.
Can I reduce my taxable SSDI benefits by increasing pre-tax deductions from my paycheck?
No, since SSDI benefits replace lost income when you are unable to work, increasing pre-tax deductions from a paycheck would not lower the amount of your benefits that are taxed. If you are receiving SSDI, you are no longer earning wages from a job.
Does SSDI count as earned income for the Earned Income Tax Credit (EITC)?
No, SSDI benefits do not count as earned income for purposes of the EITC. However, the taxable portion of your benefits is included in your adjusted gross income, which is used to determine your EITC eligibility and amount.
Can I claim the Child Tax Credit if I receive SSDI benefits?
Yes, claiming the Child Tax Credit has no direct relation to whether you receive SSDI benefits. If you meet all the Child Tax Credit eligibility requirements, you can claim it to lower your tax burden.
The Bottom Line
SSDI benefits may be taxable for certain higher-income recipients. However, the majority of disabled workers do not end up owing federal income tax on their benefits. Carefully planning your tax return using deductions, credits, and income exclusions can help eliminate or minimize any taxes due on your Social Security disability benefits. Consult the IRS or a qualified tax professional for assistance in determining whether your specific benefits will be taxed.