If you’re receiving Social Security Disability Insurance (SSDI) benefits, you may be wondering if they are subject to federal taxes. The answer depends on your overall income, and the IRS has specific rules to determine when and how much of your benefits could be taxable. Here’s what you need to know.
How the IRS Decides If Your SSDI Is Taxable
The IRS uses a formula to determine whether your SSDI benefits are subject to federal income tax. The key factor is your combined income, which is calculated as follows:
Combined Income = Half of your annual SSDI benefits + All other income (including wages, pensions, interest, dividends, and any tax-exempt interest).
Once you know your combined income, you can compare it to the IRS income thresholds.
IRS Income Thresholds for SSDI Taxability
- Single, Head of Household, or Qualifying Widow(er):
If your combined income is more than $25,000, a portion of your SSDI benefits may be taxable. - Married Filing Jointly:
If your combined income exceeds $32,000, you may owe taxes on part of your SSDI benefits. - Married Filing Separately:
If you lived with your spouse at any point during the year, your SSDI benefits are likely taxable regardless of your income level.
How Much of Your SSDI Benefits Are Taxable?
Depending on how much your combined income exceeds the IRS thresholds, up to 50% or 85% of your SSDI benefits could be subject to federal taxes. However, you won’t be taxed on the full amount of your benefits—only the portion that falls within the taxable range.
Here’s a breakdown of how it works:
- If your combined income is between $25,000 and $34,000 (for single filers) or $32,000 and $44,000 (for married filers), up to 50% of your benefits could be taxed.
- If your combined income exceeds $34,000 (for single filers) or $44,000 (for married filers), up to 85% of your benefits could be taxed.
Do You Need to File Taxes If You Only Receive SSDI?
If SSDI is your only source of income, you likely won’t owe federal taxes or need to file a return. However, if you have additional income—such as a part-time job or retirement savings—you’ll want to check if your combined income crosses the taxable threshold.
Additionally, certain states may tax SSDI benefits. Check your state’s tax laws or consult a tax advisor to understand your obligations.
Tips to Minimize Your SSDI Tax Burden
- Consider withholding taxes: You can request that federal taxes be withheld from your SSDI benefits by submitting Form W-4V to the Social Security Administration.
- Deduct medical expenses: If your medical expenses are high, you may be able to claim deductions that offset your taxable income.
- Look into tax credits: Depending on your overall financial situation, you may qualify for credits that reduce your tax liability, such as the Earned Income Tax Credit.
