Yes. You may need to file taxes on disability income, depending on the type of benefits you receive. SSDI may be taxable if your income exceeds certain limits, while SSI is not.
We will learn more about how different types of disability income are taxed and what you need to know.
What is Disability Income?
Disability income is money you get when you can’t work because of a disability. This money covers your living expenses when your regular paycheck stops. However, disability income works differently.
How?
Well, there are two main types of disability income:
⦿ Social Security Disability Insurance (SSDI)
⦿ Supplemental Security Income (SSI)
SSDI is for people who have worked and paid Social Security taxes. SSI, on the other hand, is for those with little to no income, even if they haven’t worked much.
How much do you get? It depends. If you qualify for SSDI, the amount is based on your work history.
For example, if your average monthly earnings were $3,000 before becoming disabled, your SSDI check might be around $1,500. SSI, however, has a set limit. In 2024, the max SSI payment is $943 per month for an individual.
Can you work while getting disability income? Yes, but there are limits. If you’re on SSDI, making more than $1,550 a month (in 2024) could stop your benefits.
Taxable vs. Non-Taxable Disability Income
Not all disability income is taxed. It depends on the type of benefits you receive and your overall income.
Let’s break it down.
Social Security Disability Insurance (SSDI)
SSDI can be taxable, but only if your income exceeds a certain limit.
The IRS looks at something called “combined income,” which is your adjusted gross income (AGI) plus nontaxable interest and half of your SSDI benefits. If you’re single and your combined income is over $25,000, up to 50% of your SSDI may be taxable.
If it’s over $34,000, then up to 85% of your benefits can be taxed.
For married couples filing jointly, the limits are $32,000 and $44,000, respectively.
Supplemental Security Income (SSI)
Unlike SSDI, SSI is not taxable—ever. Since it’s a needs-based program, it doesn’t count as taxable income, so you don’t need to worry about reporting it on your tax return.
Private Disability Insurance
If you have a private disability insurance policy, whether the benefits are taxable depends on who paid for the policy. If you paid the premiums with after-tax dollars, the benefits you receive are tax-free.
However, if your employer paid for the policy and didn’t include the cost as part of your taxable wages, then the benefits are taxable when you receive them.
Workers' Compensation
Workers’ compensation benefits are not taxable at all.
These payments are meant to replace lost wages due to work-related injuries, and the IRS does not count them as taxable income. The only exception is if you also receive SSDI and workers’ comp at the same time.
Then a small portion might become taxable, but this is rare.
How to Determine if You Need to File Taxes
A few factors determine if you must file taxes on disability income, like total income, filing status, and benefit taxability.
➡ Total Income
Your total income includes all sources of earnings, such as wages (if you work while receiving disability), taxable disability benefits, interest, dividends, and any other income.
If your total income surpasses the IRS filing thresholds, you must file a return.
➡ Filing Status
Whether you’re single, married filing jointly, or another status affects your tax obligations. Married couples generally have a higher income threshold before they need to file compared to single filers.
➡ Age and Dependency Status
If you’re over 65, the income threshold for filing is slightly higher. Also, if someone claims you as a dependent, different rules apply.
➡ Taxable Disability Income
If part of your Social Security Disability Insurance (SSDI) is taxable, it counts toward your total income and may push you above the IRS filing requirement.
When Disability Income Becomes Taxable
Let’s say you receive only Supplemental Security Income (SSI).
Since SSI isn’t taxable, you don’t need to file a tax return unless you have other taxable income.
However, if you receive SSDI, your tax situation depends on your combined income, which includes half of your SSDI benefits plus other taxable earnings.
Example Scenario
We can assume you’re single and receive:
⦿ $18,000 from other taxable income (wages, pensions, etc.)
⦿ $15,000 in SSDI benefits
Your combined income would be:
18,000 + (15,000÷2) = 25,500
Since this exceeds $25,000, you may owe taxes on part of your SSDI. Now, let’s move into thresholds to see exactly how much might be taxable.
Thresholds for Taxable Disability Income
The IRS uses specific limits to determine how much of your SSDI is taxable. The key number is combined income, which is:
Adjusted Gross Income (AGI) + Nontaxable Interest + (SSDI Benefits ÷ 2)
Now, based on that number:
⦿ Single filers: If combined income is $25,000 – $34,000, up to 50% of SSDI is taxable. Over $34,000, up to 85% is taxable.
⦿ Married filing jointly: If combined income is $32,000 – $44,000, up to 50% of SSDI is taxable. Over $44,000, up to 85% is taxable.
Let’s say you’re single, and your AGI is $18,000, you have $1,000 in nontaxable interest, and your SSDI is $15,000.
Your combined income would be:
18,000 + 1,000+ (215,000)
= 26,500
What to Report and How to File
If part of your disability income is taxable, you must report it correctly on your tax return. The key is knowing which forms to use and where to enter your income.
Here’s how to handle it smoothly.
➼ Step 1: Gather the Right Forms
If you receive SSDI, the Social Security Administration (SSA) sends you this form in January. It shows your total benefits for the year, including any taxable portion.
⦿ W-2 Form
If you receive disability benefits through your employer and they paid for the insurance policy, your taxable benefits will be listed on your W-2 as wages.
⦿ 1099 Form
If you have private disability insurance and it’s taxable, your insurer will send you a 1099-MISC or 1099-R, depending on how the benefits are classified.
➼ Step 2: Report Your Income on Your Tax Return
If you receive Social Security Disability Insurance (SSDI), use your SSA-1099 form to report benefits on Form 1040, entering the total SSDI amount on Line 6a and the taxable portion on Line 6b.
For employer-paid or private disability insurance, if your benefits are reported on a W-2, include the amount in the wages section of Form 1040.
If you receive a 1099, report it under the “Other Income” section of your tax return.
➼ Step 3: File Your Taxes
If your total income is low enough, you may qualify for the IRS Free File tool, which lets you submit your return for free.
And if you owe taxes, filing electronically can help you avoid delays and get your refund faster.
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FAQs
Here are some of the most common questions about filing taxes on disability income.
