Taxation of Social Security & SSDI Benefits

Social Security recipients may pay federal income taxes on retirement, disability or survivor benefits. Historically, Congress approved taxation of Social Security benefits in 1983, and added another tier of taxation in 1993. Taxation of Social Security benefits depends on combined income calculations. Combined income is a special formula used by the Internal Revenue Service for this calculation only. If you have no income other than Social Security, the IRS does not tax your benefits.

Combined Income

The IRS calculates combined income by adding half of your Social Security benefits to your nontaxable interest and your adjusted gross income figure from your tax return. If this amount is in excess of $25,000, you may owe taxes on your Social Security benefits. There is no distinction in taxation of retirement, SSDI disability or survivors benefits. The difference comes in filing status and combined income amounts.

Single Taxpayers

If you are a single Social Security recipient and your combined income is between $25,000 and $34,000, the IRS taxes 50 percent of your Social Security benefits. With combined income above $34,000, the IRS taxes 85 percent of your Social Security benefits.

Married Taxpayers

If you file your taxes jointly with your spouse, taxation of 50 percent of your Social Security benefits starts at a combined income of $32,000 and goes to $44,000. The IRS taxes 85 percent of Social Security benefits for married couples with combined income above $44,000. The IRS taxes Social Security benefits if you file separately and live with your spouse any part of the year.

Benefit Limits

The maximum possible benefit in 2011 is $2,366 for a worker who has contributed the maximum to Social Security for 35 years. This totals $26,832 a year, but combined income uses half of the Social Security benefits figure. For this reason, a Social Security recipient with no other income does not pay taxes on Social Security benefits. The IRS does not tax 100 percent of Social Security benefits.

SSDI and SSI

The Social Security Administration handles SSI disability benefits, as well as Social Security disability income or SSDI benefits. Social Security does not pay SSI benefits from taxes, but this program operates from general revenue funds. SSI is need-based assistance unrelated to work history. Federal SSI benefits in 2011 are $674 a month; some states add a supplement. The IRS does not tax SSI benefits. SSDI benefits are part of Social Security, requiring the recipient to have sufficient work history and tax payments into the Social Security system. IRS taxation of SSDI benefits follows the same regulations as other Social Security payments.

References

• Social Security Online: Taxes and Your Social Security Benefits: September 2010
• IRS.gov: Publication 915: Social Security and Equivalent Railroad Retirement Benefits: 2010
• IRS.gov: Publication 907: Tax Highlights for Persons with Disabilities:
• Social Security Online: Maximum Social Security Retirement Benefit: January 2011
• Social Security Online: A Guide To Supplemental Security Income (SSI) For Groups and Organizations: January 2010

Resources

• IRS.gov: Social Security Benefits Eligible for the Federal Payment Levy Program: December 2010