Supplemental Security Income Is Non-Taxable Income

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

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The Internal Revenue Service pretty much taxes all income. Chapter 26 of U.S. Code Section 61 defines gross taxable income as "...all income from whatever source derived." The Code lists several sources of income as examples further along in Section 61, but supplemental security income (SSI) doesn't appear anywhere on the list.

That's because it's not taxable. 

What Is SSI?

SSI is a needs-based program. It benefits the disabled, blind individuals, and those over age 65 who have very limited incomes and resources. It's intended to pay for an individual’s most basic needs: shelter and food.

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

Unlike Social Security, which you pay into over the course of your working years, SSI is not funded by taxes contributed by you. It's funded by the federal government’s tax revenues. Individuals must live in the U.S. or the Northern Mariana Islands to qualify, and you can't leave the country for 30 or more consecutive days in any given year.

Why SSI Isn’t Reported to the IRS

Because supplemental security income benefits are considered to be assistance, they're therefore not taxable income. They do not have to be reported on a tax return. 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."

But there's a bit of a gray area here and many taxpayers can find it confusing. You must 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.

Reporting Income to the SSA

It makes sense that you must report all sources of income to the SSA 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 might 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. 

According to the SSA, reportable income includes:

“...any other money or help that you, your spouse or children living in your household receive.”

In other words, the money doesn’t have to be earned income from a job. If you win the lottery—for even $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 to help you make ends meet. 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, and, in fact, you would apply for both SSI and Social Security benefits using the same application. The Social Security Administration oversees both programs.

But because SSI is needs-based, it’s not likely that you'd be in a position where other sources of income would push your Social Security benefits into the taxable range. Check with a tax professional to be sure.

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.