Supplemental Security Income Is Non-Taxable Income

You don't have to report SSI income to the IRS

Closeup of a tax return and a Social Security card
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The Internal Revenue Service taxes virtually all sources of income. Chapter 26 of U.S. Code Section 61 defines gross taxable income as "...all income from whatever source derived," and that covers a whole lot of ground. The Code cites several sources of income as examples, but Supplemental Security Income (SSI) doesn't appear anywhere on the list—because SSI is not taxable.

Some confusion arises, however, because the Social Security Administration—not the IRS—does require income reporting for purposes of qualifying for SSI.

SSI Is Needs-Based

SSI is a needs-based program. It benefits the disabled, blind individuals, and those over age 65 who have virtually no earnings or resources. It's intended to pay for an individual’s most basic needs—shelter and food—and benefits cover barely that much.

Supplemental Security Income recipients are automatically eligible for additional food assistance in every state but California, and they typically also automatically qualify for Medicaid.

Individuals must live in the U.S. or the Northern Mariana Islands to qualify for SSI, and they can't leave the country for 30 or more consecutive days in any given year. They can't be confined to an institution where their care is paid for by the government, and this includes prison.

Adults who are disabled must be unable to perform any "substantial gainful activity," and their disability must have lasted or is expected to last for at least 12 months.

Social Security Retirement Benefits vs. SSI

Supplemental Security Income benefits are considered to be assistance, so they're therefore not taxable. They're treated the same as Welfare benefits and don't have to be reported on a tax return. The IRS clearly states that taxable Social Security benefits do not include SSI payments and it instructs taxpayers that they should not include these payments in their incomes.

Social Security retirement benefits aren't treated the same as SSI for tax purposes. Retirement benefits are sometimes partially taxable and sometimes completely non-taxable. It depends on a retiree’s other sources of income.

Unlike Social Security, which you pay into over the course of your working years, SSI isn't funded by taxes contributed by you. Rather, it's funded by the federal government’s tax revenues.

The distinction can be confusing, however, because it’s possible for someone over age 65 to collect both SSI and Social Security retirement benefits. And, in fact, you would apply for both SSI and Social Security benefits using the same application. The Social Security Administration oversees both programs.

Taxation of Social Security Retirement Benefits

Retirement benefits aren't taxed unless and until the cumulative total of all the recipient's income—including Social Security retirement benefits, earnings from continued employment, unearned income from investments, and other sources—hits $25,000 for the year for single taxpayers, or $32,000 for those who are married and filing jointly.

Because SSI is needs-based, it’s not likely that a taxpayer would be in a position where these other sources of income would push their Social Security benefits into the taxable range. You most likely would not be eligible for SSSI if you had overall income in some or all of these categories, but always check with a tax professional to be sure.

Why Receiving SSI Requires Reporting Income

Although SSI benefits aren't taxable, you must nonetheless report all sources of your income to the Social Security Administration (SSA) if you're collecting SSI. But you do not have to report SSI income to the IRS. The distinction isn't so much whether benefits are reportable, but to whom they're reportable and why.

You must report all sources of income to the SSA because your need for financial support might be partially—if not entirely—erased if you come upon another source of income. This extra income could mean that you would no longer be eligible for benefits.

Understandably, the SSA wants to know about this turn of events. Likewise, if you should become employed so you're earning even just a little, this would most likely reduce your benefits even if it doesn't eliminate them entirely. 

According to the SSA, reportable income includes all money that comes into your household, including money that you, your children, or your spouse receive. The money doesn’t have to be earned from a job. If you win the lottery—for $100—or if Aunt Ethel dies and leaves you $5,000, you must report these things to the SSA.

The same applies if a friend or relative gives you a little cash on a one-time basis to help you make ends meet. The SSA wants to know about all financial resources and assistance coming into your home.

That said, the SSA does exclude some income from counting against you for qualifying purposes, such as rent subsidies.

NOTE: Tax laws change periodically, and you should consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice. 

Article Sources

  1. Internal Revenue Service. "Frequently Asked Questions—Regular & Disability Benefits," Accessed Jan. 2, 2020.

  2. Social Security Administration. "Benefits Planner—Income Taxes and Your Social Security Benefit," Accessed Jan. 2, 2020.