Tax season brings a lot of stress, and if you're on disability benefits, there's always that nagging question: do I actually owe taxes on my SSI or SSDI? The short answer is that SSI is never taxed, but SSDI might be depending on your total income. Here's a clear breakdown of how taxes work for both programs so you can file with confidence.
In this article, we'll cover:
- Whether SSI benefits are taxable
- Whether SSDI benefits are taxable
- How to determine if your SSDI is subject to federal tax
- How state taxes apply to disability benefits
- What happens if you receive back pay or a lump sum
- Tips for tax filing when you're on disability benefits
SSI and Taxes: The Simple Answer
SSI benefits are not taxable. Period. Supplemental Security Income is a needs-based program for people with very limited income and resources, and the IRS does not consider SSI payments to be taxable income. You don't need to report SSI on your tax return, and you won't receive a tax form (like a 1099) from Social Security for your SSI payments.
This applies no matter how much SSI you receive and regardless of any other income you might have. Whether you receive the full $994/month individual payment or a reduced amount, your SSI benefits are completely tax-free at the federal level. State taxes don't apply to SSI either.
That said, if you have other income besides SSI, like wages from part-time work, that other income may still be taxable under normal tax rules. The SSI itself just won't be part of the equation.
SSDI and Taxes: It Depends on Your Total Income
SSDI is a different story. Social Security Disability Insurance benefits can be subject to federal income tax, but whether you actually owe anything depends on your total income from all sources.
The IRS uses a concept called "combined income" (sometimes called "provisional income") to determine whether your SSDI benefits are taxable. Your combined income is calculated by adding together your adjusted gross income (AGI), any nontaxable interest (like municipal bond interest), and half of your SSDI benefits.
Here's how it works for individual filers. If your combined income is below $25,000, your SSDI benefits are not taxed at all. If your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. If your combined income is above $34,000, up to 85% of your benefits may be taxable.
For married couples filing jointly, the thresholds are higher. Combined income below $32,000 means no tax on benefits. Between $32,000 and $44,000, up to 50% may be taxable. Above $44,000, up to 85% may be taxable.
It's important to note that "up to 85% of your benefits may be taxable" does not mean you pay an 85% tax rate. It means that up to 85% of your SSDI benefit amount gets added to your taxable income, and then you pay your regular tax rate on that amount. For most disability recipients, the actual tax owed is much less than people fear.
How Most SSDI Recipients Actually Fare
In practice, many SSDI recipients don't owe any federal tax on their benefits. If SSDI is your only source of income, you're very unlikely to exceed the $25,000 threshold. The average SSDI payment is about $1,630/month, which works out to roughly $19,560 per year. Half of that is approximately $9,780, well under the $25,000 threshold.
Taxes on SSDI typically become an issue when you have additional income on top of your disability payments, such as a spouse's earnings, pension income, investment income, or wages from permitted work activity. If you're working during a Trial Work Period (where you can earn above $1,210/month in 2026 and still receive SSDI) or doing Substantial Gainful Activity at the $1,690/month limit, that additional income could push you into taxable territory.
If you do owe taxes on your SSDI, you can either pay estimated taxes quarterly or ask Social Security to withhold federal taxes from your monthly payment by submitting Form W-4V (Voluntary Withholding Request). You can choose to have 7%, 10%, 12%, or 22% withheld.
Do States Tax Disability Benefits?
The majority of states do not tax Social Security disability benefits. However, a handful of states do include Social Security income in their state tax calculations, at least to some extent. The list of states that tax Social Security benefits has been shrinking over the years, as many have been phasing out this tax.
If you live in a state that taxes Social Security, the rules are often more generous than the federal rules, with higher income thresholds or lower percentages of benefits subject to tax. The best approach is to check your specific state's tax rules or consult a tax professional to understand your state tax obligation.
SSI, as noted above, is never taxed at the state level regardless of where you live.
What About Back Pay and Lump Sum Payments?
If you're approved for SSDI after a lengthy application process, you may receive a lump sum back payment covering the months between when your disability began and when you were approved. This can sometimes be a substantial amount, and it can create a tax headache if it all shows up as income in a single year.
The good news is that the IRS allows you to apply a lump sum election method. This lets you go back and allocate the back pay to the years it actually should have been paid, potentially reducing or eliminating the tax impact. Social Security sends you a Form SSA-1099 each January showing the total benefits paid during the previous year, and it also shows the amount attributable to prior years to help with this calculation.
For SSI recipients who receive back pay, there's no tax impact since SSI is never taxable. However, a large SSI back payment does need to be spent down to stay under the resource limit, so you'll need a plan for how to use those funds within the allowable time frame (generally within nine months for certain types of back payments).
Tax Filing Tips for Disability Recipients
Even if you don't owe taxes, filing a return can still be worthwhile. You may qualify for tax credits like the Earned Income Tax Credit (EITC) if you have some earned income, or other credits and deductions that could result in a refund.
If your only income is SSI, you typically don't need to file a federal tax return at all. If your only income is SSDI and it falls below the taxable threshold, you also may not be required to file, though filing may still be beneficial if you're eligible for credits.
Keep all of your tax documents organized, including your SSA-1099, any W-2s from employment, and records of other income. If your tax situation is complicated by back pay, concurrent benefits, or income from work, consider using a free tax preparation service like VITA (Volunteer Income Tax Assistance), which offers free tax help to people with disabilities and low-income taxpayers.
Managing your benefits and your finances should be straightforward. Purple's checking account is built for SSI and SSDI recipients, helping you keep track of your resources and stay on top of your financial picture all year long.