Are Social Security Disability Benefits Taxable?
When Disability Benefits Can Be Taxed
Three types of benefits fall under the umbrella of Social Security: retirement benefits, disability benefits, and supplemental income. Social Security retirement and disability benefits might be taxable if you have other sources of income that push your total annual income above a certain threshold. About one-third of people who receive Social Security Disability Insurance (SSDI) benefits pay taxes on at least a portion of what they receive.
Social Security disability benefits are from the federal government. They shouldn't be confused with short-term disability, a type of insurance coverage often included in an employment compensation package.
How Social Security Disability Works
SSDI benefits are provided to those who can’t work due to a medical condition or other disability. For you to be eligible, the Social Security Administration (SSA) must come to the conclusion that you can’t do the kind of work you did before you became ill or disabled, and that your condition will prevent you from being able to adjust to other work. Your illness or disability must have lasted at least a year, or be expected to either last at least one year or result in death.
To qualify, you must also have worked long enough and recently enough at a job at which you and your employer paid into Social Security. Self-employment income will qualify you as well if you paid the self-employment tax, which is both halves of Medicare and Social Security taxes. (If you worked for an employer, they would pay half of these taxes.)
You'll earn a "work credit" for each $1,410 you received in earned income in 2020, up to a maximum of four credits each year. This increases to $1,470 in 2021.
The number of work credits you’ll need to qualify for Social Security disability benefits depends on how old you are when you become disabled.
When Is Social Security Disability Taxable?
Whether your benefits are taxable depends on your income from all sources, as well as your filing status. Add half of your Social Security benefits you received to any other income you might have, including unearned income like interest or dividends. If you’re married, you must also include any income or benefits your spouse earns or receives, even tax-exempt interest. Then check the tables below for your filing status to see what percentage of your Social Security disability benefits are taxable.
Single, Head of Household, Qualified Widow(er), or Married Filing Separately and Lived Apart for All of 2020
|Income||% of Benefits That Are Taxable|
|$25,000 to $34,000||50%|
If you’re married but file a separate tax return and lived with your spouse at any point during the tax year, you’ll have to pay taxes on up to 85% of your SSDI benefits even if you have no other income.
Married Filing Jointly
|Income||% of Benefits That Are Taxable|
|$32,000 to $44,000||50%|
These rules specify how much of your benefits are taxable, not that you’ll pay a 50% or 85% tax rate on them. Social Security disability benefits are taxed just like ordinary income, according to your tax bracket.
An Example of Taxable SSDI Benefits
Let’s say you’re single and your income for the 2020 tax year—the tax return you file in 2021—includes $12,000 in SSDI benefits and $20,000 in other income. Combining your other income with half your SSDI benefits gives you taxable income of $26,000. Since that falls into the $25,000 to $34,000 range, you’ll pay taxes on 50% of your benefits.
Your $26,000 income puts you in the 12% tax bracket. So you’ll pay 10% in taxes on the first $9,875, and then 12% on everything above that.
The Effect of Lump-Sum Payments
You could find yourself in a higher tax bracket if the Social Security Administration gives you a lump-sum payment, which it sometimes does. This typically happens when you receive payments for months during which you were disabled but had not yet been officially approved to receive benefits.
This back pay is retroactive, and receiving all of it at once could increase your income for that year to the point where you move into the next highest tax bracket.
A lump-sum payment could also bump you up over the 50% or 85% thresholds for taxable benefits.
State Taxes on Disability Benefits
These rules apply only at the federal level. Thirteen states also tax Social Security benefits as of 2020: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia, although exactly how they do so varies by state.
Some states follow the same rules as for federal taxes, but others have their own formulas and rules for disability benefits.
You might want to check with a tax professional if you live in any of these states so you know you’re getting your calculations right.
How to Report Taxes on Social Security Disability Benefits
The SSA will send you tax form SSA-1099 after the end of the tax year. This is the “Social Security Benefit Statement.” The total benefits you received will appear in Box 5. You can transfer this amount to line 5 of your 2020 Form 1040.
Enter the taxable portion of those benefits on line 6b of your 2020 Form 1040—either zero, 50%, or 85% of the total, depending on your overall income.