Are Social Security Disability Benefits Taxed?

While Social Security Disability benefits may be subject to taxation, it is not a universal rule and depends on an individual’s overall financial situation. This article clarifies the specific rules and thresholds that determine whether these benefits are taxable and how to report them.

Understanding How Benefits Are Taxed

Whether your Social Security Disability Insurance (SSDI) benefits are taxable depends on your “provisional income,” also referred to as “combined income” by the IRS. Provisional income is calculated by adding your adjusted gross income (AGI), any tax-exempt interest income, and one-half of your total Social Security benefits. This calculation helps determine if your income level crosses certain thresholds set by the IRS for taxation.

SSDI benefits are treated similarly to Social Security retirement benefits for tax purposes. If your provisional income falls below specific thresholds, your benefits are not taxable. For single filers, this threshold is $25,000. For those married filing jointly, the threshold is $32,000.

If your provisional income exceeds these initial thresholds, a portion of your Social Security benefits may become taxable. Even if benefits are taxable, it is only a portion (up to 50% or up to 85%), never the entire amount received.

Single Filers

If provisional income is between $25,000 and $34,000, up to 50% of benefits may be subject to tax.
If provisional income is above $34,000, up to 85% of benefits could be taxable.

Married Couples Filing Jointly

If provisional income is between $32,000 and $44,000, up to 50% of benefits may be taxable.
If provisional income exceeds $44,000, up to 85% of benefits could be taxable.

For example, a single individual receiving $12,000 in Social Security benefits and $20,000 in other income would calculate their provisional income as $20,000 (other income) + $6,000 (half of Social Security benefits) = $26,000. Since $26,000 is between $25,000 and $34,000, up to 50% of their Social Security benefits would be taxable. The exact taxable amount is determined by specific IRS worksheets, but it would be less than the full $6,000.

Reporting Your Benefits

Each January, the Social Security Administration (SSA) sends Form SSA-1099, “Social Security Benefit Statement,” to individuals who received benefits in the prior year. This form details the total benefits received, any amounts repaid, and any federal income tax voluntarily withheld. This document is used for preparing your tax return.

When preparing your federal income tax return, use the information from Form SSA-1099. Total Social Security benefits received are reported on line 6a of IRS Form 1040 or Form 1040-SR. The calculated taxable portion is reported on line 6b of the same form.

If you anticipate a portion of your Social Security benefits will be taxable, you have options to manage your potential tax liability.

Estimated Tax Payments

Make estimated tax payments using Form 1040-ES, “Estimated Tax for Individuals.” These payments are typically made quarterly to cover income not subject to withholding, such as Social Security benefits.

Voluntary Withholding

Request federal income tax be voluntarily withheld directly from your Social Security benefits by submitting Form W-4V, “Voluntary Withholding Request,” to your local Social Security Administration office. You can choose to have 7%, 10%, 12%, or 22% withheld from each payment. This can help prevent a large tax bill at year-end.

Distinguishing Social Security Disability Benefits from Supplemental Security Income for Tax Purposes

It is important to differentiate between Social Security Disability Insurance (SSDI) benefits and Supplemental Security Income (SSI) for tax purposes, as their tax treatment differs. Supplemental Security Income (SSI) is a needs-based program that provides financial assistance to low-income individuals who are aged, blind, or disabled. This program is funded by general tax revenues, not by Social Security taxes.

Supplemental Security Income (SSI) benefits are generally not considered taxable income by the IRS. This means recipients of SSI typically do not need to report these payments on their federal income tax returns. The non-taxable nature of SSI benefits is due to their purpose as a safety net for those with limited income and resources.

In contrast, Social Security Disability Insurance (SSDI) benefits, which are earned through past work and contributions to Social Security taxes, can be taxable depending on the recipient’s provisional income, as discussed earlier.