Are Social Security Disability Benefits Taxed?

Social Security Disability benefits, similar to other Social Security payments, can be subject to federal income tax. Whether a portion of these benefits is taxable depends on the recipient’s total income from all sources, including disability benefits, other earnings, pensions, and investment income. Many recipients may find their benefits are not taxed, particularly if Social Security is their primary or sole source of income.

Determining Taxability

The Internal Revenue Service (IRS) uses a calculation, known as “combined income,” to determine if Social Security benefits are taxable. Combined income is calculated by adding your adjusted gross income (AGI), any nontaxable interest, and one-half of your total Social Security benefits received for the year. This calculation helps the IRS assess a taxpayer’s overall financial picture.

Once combined income is determined, it is compared against thresholds set by the IRS for different tax filing statuses. For single individuals, heads of household, or qualifying widow(er)s, if combined income is less than $25,000, none of the Social Security benefits are taxable. If combined income is between $25,000 and $34,000, up to 50% of the benefits may be taxable. For those with combined income exceeding $34,000, up to 85% of their benefits are taxable.

Married individuals filing jointly have different thresholds. If their combined income is less than $32,000, their Social Security benefits are not taxable. If combined income is between $32,000 and $44,000, up to 50% of the benefits may be taxable. If their combined income surpasses $44,000, up to 85% of their Social Security benefits are taxable. Married individuals filing separately who lived with their spouse at any point during the tax year face taxation on up to 85% of their benefits, regardless of income level.

Calculating Taxable Benefits

The amount of taxable Social Security Disability benefits depends on which income threshold is met. For taxpayers whose combined income exceeds the first threshold but not the second, up to 50% of their Social Security benefits may be taxable. The taxable amount is the lesser of two figures: either 50% of the annual Social Security benefits received, or 50% of the amount by which combined income exceeds the first threshold.

For example, a single filer with $30,000 in combined income would calculate the difference between their combined income and the $25,000 threshold. Half of this difference would be compared to half of their total Social Security benefits; the smaller amount is taxable. If a taxpayer’s combined income surpasses the second, higher threshold, up to 85% of their Social Security benefits may be taxable. No more than 85% of Social Security benefits will ever be taxed, regardless of income level.

Reporting Social Security Benefits

Recipients of Social Security Disability benefits will receive Form SSA-1099, Social Security Benefit Statement, from the Social Security Administration (SSA) by January each year. This form provides a summary of the total benefits received during the previous calendar year. Box 5 on Form SSA-1099 shows the net amount of benefits paid for the year.

This information is used when preparing a federal income tax return. The total amount of Social Security benefits from Form SSA-1099, Box 5, is reported on Line 6a of Form 1040 or Form 1040-SR. The calculated taxable portion of these benefits is then entered on Line 6b of the same form. Social Security Disability benefits should be distinguished from Supplemental Security Income (SSI) payments, as SSI is not taxable income and is not reported on Form SSA-1099. Taxpayers who anticipate their benefits will be taxable can opt to have federal income tax withheld from their monthly Social Security payments by submitting Form W-4V to the SSA.