The Internal Revenue Service (IRS) 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—that means 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. Here's how income affects SSI.
SSI Is Needs-Based
SSI is a needs-based program. It benefits the disabled, blind individuals, and those over age 65 who meet financial limits. It's intended to pay for an individual’s most basic needs—shelter and food.
Supplemental Security Income recipients are usually automatically eligible for other government benefits, such as additional food assistance, but some states impose additional financial tests to confirm eligibility.
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. Residents of public institutions—including inmates in prison—usually can't receive SSI, though there are some exceptions for situations including temporary homeless shelters and educational institutions.
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, and that means they aren't taxable. Like welfare benefits, they don't have to be reported on a tax return. However, the IRS differentiates between Social Security retirement benefits and SSI payments—SSI payments are not taxable, but benefits may be. Retirement benefits are sometimes completely non-taxable, but 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 because it’s possible for someone over age 65 to collect both SSI and Social Security retirement benefits. The Social Security Administration oversees both programs, and beneficiaries use the same application for both payments.
Taxation of Social Security Retirement Benefits
Retirement benefits aren't taxed unless and until the cumulative total of all the recipient's income—including (but not limited to) Social Security retirement benefits, earnings from continued employment, and unearned income from investments—hits $25,000 for the year for single taxpayers or $32,000 for those who are married and filing jointly.
If you receive both SSI and retirement benefits, then it's unlikely that you would owe taxes on those benefits. That's because SSI is needs-based, so a taxpayer receiving SSI probably doesn't have other sources of income that would push their Social Security benefits into the taxable range. It may be best to check with a tax professional if you receive SSI and have income from other sources.
Reporting Income to the SSA
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 SSI.
State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.
Understandably, the SSA wants to know about this turn of events. Likewise, if you should become employed so you're earning (even if it's just a little income), this would most likely reduce your benefits. However, it may not completely eliminate your benefits.
According to the SSA, reportable income includes all money that comes into your household, including money that you or your spouse receives. The money doesn’t have to be earned from a job. If you win a little money from a scratch-off ticket or receive a cash gift from a family member, you must report these things to the SSA.
There are a few sources of income that the SSA does exclude from counting against you for qualifying purposes, such as rent subsidies.
Frequently Asked Questions (FAQs)
Do you have to file a tax return if you're on Social Security?
Whether you have to file a tax return if you receive Social Security depends on whether you receive any additional income and how much that income is. If you only receive Social Security with no other income, you may not have to file a tax return. If you have other income, that income plus 50% of your Social Security determines whether you need to file. You'll need to file if that total is $25,000 or more if you're a single filer, $32.000 if you're married filing jointly, $25,000 if you're married filing separately and you lived apart from your spouse for the entire year, and $0 if you're married filing separately and you lived together for some part of the year.
Do you have to file taxes on disability income?
Social Security disability benefits follow the same rules as Social Security retirement benefits when filing and paying federal income taxes. If you only receive Social Security disability, you may not have to file a tax return. If you receive income in addition to your disability benefits, you will have to file if your income plus 50% of your benefits meets certain thresholds.