Can You File Taxes if You Get Disability? What to Know

When you start receiving disability payments, a common question is: can you file taxes if you get disability?

The answer isn’t a simple yes or no; it depends on the type of benefit you receive and your overall income. For many recipients, the income from their benefits is not taxed, but for others, a portion may be subject to federal and, potentially, state taxes. 

At National Disability Benefits, we understand the importance of financial clarity. Knowing the difference between SSI and SSDI taxation is the first step toward handling your taxes correctly and avoiding unexpected bills.

The Federal Taxation of Disability Benefits: SSI vs. SSDI

The most critical distinction for tax purposes is the source of your benefit payment:

• Supplemental Security Income (SSI): Since SSI is a financial safety net for people with limited resources, SSI payments are never taxed by the federal government. If SSI is your only source of income, you typically do not need to file a tax return.

• Social Security Disability Insurance (SSDI): SSDI is an insurance program based on your work history. These benefits may be taxable if your total income exceeds certain thresholds set by the IRS.

The IRS determines taxability using a figure called Provisional Income (or Combined Income). This calculation includes your Adjusted Gross Income (AGI), any tax-exempt interest, and half of your annual SSDI benefits.

If your provisional income is above a certain base amount for your filing status (e.g., single or married filing jointly):

• A portion of your benefits (up to 50%) may be subject to federal income tax.
• If your income exceeds a higher limit, up to 85% of your benefits may be taxed.

This is particularly important if you or your spouse has income from other sources, such as pensions, investments, or limited part-time work.

State-Level Tax Regulations for Disability Income

In addition to federal rules, you must consider where you live. While most states do not tax Social Security benefits, a small number of states do have their own income tax laws that may affect your SSDI payments.

These states often offer their own tax relief, such as full or partial deductions or exemptions based on your age or total income level. For example, a state might completely exempt benefits for low-income residents.

Process and Best Practices for Filing

If you receive SSDI, you will receive Form SSA-1099, Social Security Benefit Statement, every January. This form is important for filing:

1. Report Income

Box 5 on the SSA-1099 shows the total benefits you received for the year, which is the amount you use to report to the IRS.

2. Lump-Sum Back Payments

Receiving a large, one-time lump-sum back payment can potentially trigger tax liability. The IRS allows you to use a special method to spread that income back to the years it was originally due, which can reduce your tax burden. This calculation often requires professional help or the use of specific IRS forms.

3. Voluntary Withholding

To prevent owing a large tax bill in April, you can use IRS Form W-4V to ask the SSA to voluntarily withhold federal income tax from your monthly SSDI payments.

Contact National Disability Benefits for Disability Claim Guidance

National Disability Benefits is dedicated to securing the SSDI or SSI benefits that form the foundation of your income. If you are navigating the complex initial application, struggling with an appeal, or need help understanding your eligibility, our expert advocates are ready to assist.