Are Social Security Disability Payments Taxable?

In general, Social Security Disability Insurance (SSDI) payments may be taxable, but Supplemental Security Income (SSI) payments are not. Here's how each works:

SSDI Payments and Taxes:

• SSDI payments can be taxable if your combined income exceeds a certain threshold. The SSA calculates your combined income by adding together your adjusted gross income (AGI), any nontaxable interest, and half of your SSDI benefits.
• For individuals, if your combined income is more than $25,000 per year, up to 50% of your SSDI benefits may be subject to federal income tax. If your combined income exceeds $34,000, up to 85% of your SSDI benefits could be taxable.
• For married couples filing jointly, the threshold for taxation starts at $32,000 in combined income. If you make more than $44,000, up to 85% of your SSDI benefits could be taxed.

SSI Payments and Taxes:

• SSI benefits are not taxable. Since SSI is a needs-based program for individuals with limited income and resources, the benefits you receive from SSI are not included in your taxable income, and you don’t need to report them on your tax return.

How is Social Security Disability Taxed?

If your SSDI benefits are taxable, the amount of taxes you owe will depend on your total income. Here's how to determine if your SSDI benefits are taxable and how much tax you'll need to pay:

Tax Rate:

• The taxable portion of your SSDI benefits will be included in your gross income and taxed at your ordinary income tax rate. The exact amount of tax you’ll pay depends on your total income and filing status. The higher your combined income, the greater the portion of your SSDI benefits that will be taxable.

Filing Your Taxes:

• If you’re required to pay taxes on your SSDI benefits, you must report them on your federal tax return. Use Form SSA-1099, which the Social Security Administration (SSA) sends to you every year, to determine how much of your SSDI benefits are taxable.
• Your Form SSA-1099 will show the total amount of SSDI benefits you received during the year. If some of your benefits are taxable, you will report this amount on your tax return, along with your other income, to calculate your total taxable income.

Can You Have Taxes Withheld from Your SSDI Payments?

If you anticipate owing taxes on your SSDI benefits, you can have federal taxes withheld directly from your monthly payments. This can help you avoid a large tax bill when filing your tax return. Here's how to set it up:

Voluntary Tax Withholding:

• You can request that the Social Security Administration (SSA) withhold federal income taxes from your SSDI payments by filling out Form W-4V (Voluntary Withholding Request). This form allows you to choose how much tax you want withheld from your benefits.
• The withholding amounts range from 7%, 10%, 12%, or 22%, depending on the percentage you choose.

State Taxes:

• In addition to federal taxes, some states tax Social Security Disability benefits. The states that tax SSDI benefits include Colorado, Minnesota, Missouri, North Dakota, Utah, and West Virginia. If you live in one of these states, you may owe additional state income taxes on your SSDI payments.
• SSI benefits are not taxed by any state because they are federal benefits. However, you should check with your state’s tax authority to understand any specific state income tax rules.

What About Taxes on Other Benefits Related to Disability?

If you are receiving other disability-related benefits, such as workers' compensation or disability pensions, these may also impact your taxes:

Workers’ Compensation:

• If you’re receiving workers’ compensation and SSDI benefits, the two benefits combined may be subject to tax. Specifically, if your total income (including both SSDI and workers' compensation) exceeds the taxable threshold, you may need to pay taxes on your benefits.

Disability Insurance:

• If you receive disability insurance benefits through an employer, whether these payments are taxable depends on who paid the premiums. If your employer paid the premiums, the benefits are generally taxable. If you paid the premiums with after-tax dollars, the benefits are generally not taxable.

What Happens if You Underpay Your Taxes on SSDI?

If you don’t have taxes withheld from your SSDI payments and you owe taxes at the end of the year, you may face penalties or interest for underpayment. Here’s what to do to avoid this:

Make Estimated Tax Payments:

• If you don’t have taxes withheld from your SSDI payments, you can make quarterly estimated tax payments to the IRS. These payments are due four times a year and help cover your tax liability.

Adjust Withholding for Next Year:

• If you find that you owed taxes in the previous year, consider adjusting your withholding for the following year by submitting a new Form W-4V to the SSA to ensure that enough taxes are withheld from your payments.