Supplemental Security Income Is Non-Taxable Income
You don't have to report SSI income to the IRS
The Internal Revenue Service taxes all income, right? Chapter 26 of U.S. Code Section 61 defines gross taxable income as "...all income from whatever source derived." That sounds pretty clear...but it doesn't tell the whole story. Further along in Section 61, the Code lists several sources of income as examples. Supplemental security income—commonly called SSI—appears nowhere on the list. That's because it's not taxable.
A reader wrote:
"Hi, I am trying to figure out if/how to report SSI income for a disabled child on our taxes. The SSA said I "must" report it, but the tax people said that since it is for a dependent, we do not have to. Can I just list it in the "other income" section? I would rather mess up by giving the IRS too much money rather than owe them later!"
Wait—the SSA says it must be reported? That's correct—sort of. Income must be reported to the SSA, but SSI is not reportable to the IRS.
Why SSI Isn’t Reported to the IRS
SSI is a needs-based program. It benefits disabled and blind individuals, as well as those over the age of 65, who have very limited incomes and resources. Unlike Social Security, which you pay into over the course of your working years, SSI is funded not by taxes contributed by you but by the federal government’s tax revenues. It's intended to pay for an individual’s most basic needs: shelter and food.
It’s assistance, not taxable income.
Therefore, supplemental security income benefits are completely non-taxable. They do not have to be reported on a tax return. Despite the language included in the U.S. Code, the IRS makes this clear in Publication 907, Tax Highlights for Persons with Disabilities, where it says "Social security benefits do not include SSI payments, which are not taxable; do not include these payments in your income."
Reporting Income to the SSA
Our reader was understandably confused by the statement from the Social Security Administration that she must “report” SSI income. This doesn’t mean that she should report it to the Internal Revenue Service on a tax return, but rather that she must report to the SSA any other income earned by the individual who is receiving the benefits. And this makes sense when you think about it.
Remember, SSI is needs-based. If you suddenly come upon another source of income or you should win the lottery tomorrow, your need for financial support may be partially, if not entirely, erased. This means 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 income, this would most likely reduce your benefits somewhat even if it did not eliminate them entirely.
The SSA requires that all changes of income be reported to the Administration, not to the IRS on a tax return, so benefits can be adjusted or terminated. This includes “any other money or help that you, your spouse or children living in your household receive,” according to the SSA.
In other words, just like that winning lottery ticket, the money doesn’t have to be earned income. If your Aunt Ethel dies and leaves you $5,000, it must be reported to the SSA. The SSA wants to know about all financial resources and assistance coming into your household.
Social Security Benefits vs. SSI
Social Security benefits are not treated the same tax-wise. These benefits are sometimes partially taxable and sometimes completely non-taxable, depending on a retiree’s other sources of income. This can get confusing because it’s possible for someone over age 65 to collect both SSI and Social Security benefits. Because SSI is needs-based, it’s not likely that other sources of income would push Social Security benefits into the taxable range, but check with a tax professional if you're unsure.
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.