Is SSDI Income Tax Exempt?

Most SSDI recipients do not owe federal income taxes on their monthly checks, however a large back pay award could put someone over the threshold that triggers taxation.

In such an instance, the IRS could include up to 85% of your SSDI benefits in your taxable income. Fortunately, there are ways around this.


SSDI benefits are generally exempt from federal income taxes; however, the IRS may consider up to 85% of your total income when deciding if taxes must be withheld from them. Your total income typically consists of both SSDI payments as well as wages from work or investments gains or losses, stock dividends, bank interest income or retirement savings from 401(k) plans or traditional IRA accounts and any other sources.

If you receive a retroactive SSDI award as a lump-sum payment, it is crucial to consult with an accountant or qualified financial professional immediately as this large lump-sum can have a dramatic effect on your taxable income for the year in which it arrives.

Young, Marr & Mallis can assist in exploring your options to apply past-due SSDI benefits against future tax returns to reduce taxable income in the year that your retroactive award arrives. Their experienced Philadelphia disability attorneys can explain your available choices.


Most states do not tax SSDI benefits; however, 12 do. Of those states that do tax SSDI benefits, those that do use similar systems as the IRS to assess how much income their residents are earning.

Individuals earning up to $25,000 a year (including half of their SSDI benefits) do not owe taxes on their SSDI benefits. Once over this threshold, however, taxes must begin being withheld from some portion of these benefits.

If you suspect you will need to start paying taxes on your SSDI benefits, consulting a tax professional is essential. They can assist with figuring out how much withholding to request from Social Security as well as making quarterly estimated tax payments throughout the year – this prevents an unexpected bill at year-end as well as helping avoid stress and expense associated with an IRS audit.


Pennsylvania does not impose taxes on Social Security disability benefits unless one-half of these payments combined with other income exceeds its taxable threshold. Other income includes W-2 wages from part-time jobs, investment gains, stock dividends, bank interest payments and retirement funds from 401(k) and traditional IRA accounts. Taxpayers may be able to sidestep this problem by asking the Social Security Administration withhold federal taxes from every monthly check they receive.

SSDI recipients who do not have substantial other household income typically do not owe taxes on those benefits; however, about one-third of married and file jointly disability recipients may owe taxes due to substantial wages, other household income, or both combining with Social Security disability payments. If you are uncertain as to the taxability of your SSDI income, consider consulting a professional accountant; alternatively many community organizations such as IRS Volunteer Income Tax Assistance Program and Tax Counseling for the Elderly offer free tax help specifically targeted towards seniors.


SSDI benefits can take years to obtain and can often require large lump-sum retroactive awards to increase income in one year, potentially costing thousands in taxes. A tax professional can assist recipients by amending prior year tax returns in order to lower income during that year when back payments arrive.

SSA disability benefits are usually not taxed until an individual’s provisional income exceeds a threshold, depending on their filing status and filing status of spouses filing jointly, for instance. When this threshold is crossed, however, the IRS can garnish or lien monthly SSDI checks to collect delinquent taxes owed. Therefore it is imperative for recipients of SSDI benefits to consult an experienced accountant shortly after receiving them; additionally a qualified attorney can make recommendations to reduce tax liabilities as their fees usually aren’t considered taxable income either!

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