Is Social Security Disability Considered Income?

Social Security Disability Insurance (SSDI) provides financial assistance to individuals who are unable to work due to a disability. This federal program, funded through payroll taxes, offers a safety net for those with a qualifying work history. A common question among recipients is whether these benefits are considered income for tax purposes. While not all Social Security disability benefits are taxable, they can be subject to federal income tax depending on the recipient’s total income.

Understanding Social Security Disability Benefits Taxability

The Internal Revenue Service (IRS) determines the taxability of Social Security disability benefits based on “combined income.” This calculation determines if a recipient’s total earnings, including a portion of their benefits, exceed certain thresholds. If combined income surpasses these amounts, a portion of the Social Security Disability Insurance benefits becomes subject to federal income tax.

Combined income includes wages, pensions, interest, dividends, and capital gains. Many individuals who receive SSDI benefits do not pay taxes on them because their overall income remains below the established thresholds. However, if a recipient has additional income streams, tax liability for their SSDI benefits can arise.

Calculating Taxable Social Security Disability Benefits

Taxpayers must calculate their “combined income” to determine if Social Security disability benefits are taxable. This figure is derived by adding your Adjusted Gross Income (AGI), any nontaxable interest, and one-half of your total Social Security benefits. The IRS sets specific thresholds for this combined income, which dictate the percentage of benefits that may be taxed.

There are two tiers of taxation for Social Security benefits. If your combined income falls between the first and second thresholds, up to 50% of your benefits may be taxable. For single filers, this occurs when combined income is between $25,000 and $34,000. For those married filing jointly, the range is between $32,000 and $44,000.

If your combined income exceeds the second threshold, up to 85% of your Social Security benefits can be taxable. This applies to single filers with combined income above $34,000, and married couples filing jointly with combined income over $44,000. For individuals married filing separately who lived with their spouse at any time during the tax year, the threshold is $0, meaning a portion of their benefits will likely be taxable.

Reporting Social Security Disability Benefits on Your Tax Return

Each January, the Social Security Administration (SSA) issues Form SSA-1099, “Social Security Benefit Statement,” to all individuals who received Social Security benefits in the prior year. This form is for tax reporting as it details the total amount of benefits received. The IRS also receives a copy of this statement.

When preparing a federal income tax return, the total Social Security benefits reported on Form SSA-1099 (specifically, the net amount in Box 5) are entered on Line 6a of Form 1040 or Form 1040-SR. The calculated taxable portion of these benefits is then reported on Line 6b. Tax software automates this calculation based on your income entries.

To manage potential tax liabilities, recipients can opt to have federal income taxes withheld directly from their monthly Social Security payments. This can be done by completing IRS Form W-4V, “Voluntary Withholding Request,” and submitting it to the Social Security Administration. Individuals can choose a withholding rate of 7%, 10%, 12%, or 22% to help avoid owing a large tax bill at year-end.

Social Security Disability Insurance Versus Supplemental Security Income

Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) have different tax implications. SSDI is an earned benefit program, with eligibility based on an individual’s past work history and contributions to Social Security taxes. As discussed, SSDI benefits can be subject to federal income tax if the recipient’s combined income exceeds specific thresholds.

In contrast, Supplemental Security Income (SSI) is a needs-based program designed to provide financial assistance to aged, blind, and disabled individuals with limited income and resources, regardless of their work history. SSI benefits are not considered taxable income by the IRS. Therefore, SSI payments do not factor into the taxable benefit calculation and do not need to be reported on a federal tax return.