Do You Pay Taxes on SSDI Benefits?
Understand if your SSDI benefits are taxable, how to calculate the amount, and manage your tax liability effectively.
Social Security Disability Insurance (SSDI) benefits provide a financial safety net for individuals unable to work due to a significant disability. While many assume these benefits are entirely tax-exempt, a portion of SSDI payments can be subject to federal income tax for some recipients. The taxability of these benefits depends on a recipient’s overall income, including other earnings and investments. This structure ensures that only those with income exceeding specific thresholds may owe taxes on their SSDI.
Understanding Taxable Income Thresholds
Whether your SSDI benefits are subject to federal income tax hinges on your “combined income.” This figure is calculated by adding your adjusted gross income (AGI), any tax-exempt interest, and one-half of your Social Security benefits. For the 2024 tax year, the Internal Revenue Service (IRS) outlines specific thresholds that determine the taxability of these benefits.
If your combined income falls below the first threshold, none of your Social Security benefits are taxable. For single filers, heads of household, and qualifying surviving spouses, this threshold is $25,000, while married couples filing jointly have a threshold of $32,000.
If your combined income is between the first and second thresholds, up to 50% of your benefits may be subject to federal income tax. For single filers, this range is between $25,000 and $34,000. Married couples filing jointly have this 50% taxability if their combined income is between $32,000 and $44,000.
If your combined income exceeds the second threshold, up to 85% of your Social Security benefits can become taxable. This applies to single filers with combined income over $34,000 and married couples filing jointly with combined income over $44,000. No more than 85% of Social Security benefits are ever taxable, regardless of income level.
Calculating the Taxable Portion of Benefits
Once your combined income exceeds the initial thresholds, the specific amount of your SSDI benefits subject to tax is determined through a calculation outlined by the IRS. For those whose combined income falls between the first and second thresholds, the taxable amount is the lesser of two figures: 50% of your total Social Security benefits, or 50% of the amount by which your combined income exceeds the first threshold. For instance, a single filer with $28,000 in combined income and $10,000 in annual SSDI benefits would calculate 50% of $10,000 ($5,000) and 50% of the excess over $25,000 ($28,000 – $25,000 = $3,000; 50% of $3,000 = $1,500). In this case, $1,500 would be the taxable portion.
For individuals with combined income above the second threshold, the calculation becomes more intricate, taxing up to 85% of benefits. The taxable amount is the lesser of 85% of your total Social Security benefits, or a sum involving 85% of the combined income exceeding the second threshold, plus a fixed amount from the 50% rule. For a single filer, this fixed amount is $4,500. For married couples filing jointly, this fixed amount is $6,000.
Reporting Your Benefits to the IRS
Each year, the Social Security Administration (SSA) will send you Form SSA-1099, “Social Security Benefit Statement,” by January 31st. This document summarizes the total benefits received, including any amounts repaid and federal income tax withheld. Box 5 on Form SSA-1099 shows the net benefits paid for the year.
When preparing your federal income tax return, use Form 1040. The total Social Security benefits received, as shown in Box 5 of Form SSA-1099, should be reported on line 6a of Form 1040. After determining the taxable portion of your benefits, this amount is entered on line 6b of Form 1040.
Accurately transfer these figures from your SSA-1099 to your tax return. Failure to report taxable Social Security benefits can lead to inquiries from the IRS. Tax preparation software can assist with these calculations, or a qualified tax professional can provide guidance.
Managing Your Tax Liability
Recipients of SSDI benefits who anticipate their benefits will be taxable can manage their tax liability. One method is to request federal income tax withholding directly from your Social Security benefits. This can be done by completing IRS Form W-4V, “Voluntary Withholding Request.”
On Form W-4V, you can choose to have 7%, 10%, 12%, or 22% of your monthly benefit withheld. Submit this form to the Social Security Administration, not the IRS. This voluntary withholding can help prevent a large tax bill and reduce the risk of underpayment penalties.
Alternatively, if you have other sources of income or choose not to have tax withheld from your benefits, you may need to pay estimated taxes quarterly. This is done using Form 1040-ES, “Estimated Tax for Individuals.” Estimated taxes are payments made throughout the year to cover tax on income not subject to withholding, such as earnings from self-employment, interest, or dividends. If you expect to owe at least $1,000 in tax for the year, after accounting for any withholding and credits, you generally need to make estimated tax payments.