This information in this article is up to date through tax year 2023 (tax returns filed in 2024).
If you receive disability benefits every month, you may be wondering how it will affect your taxes. Here’s what you need to know about reporting these benefits on your income tax return and what could be taxable in your situation.
What is disability income?
There are three main types of disability income: Social Security, Military, and Retirement. Two programs that anyone with a disability can apply for are Social Security Disability (SSDI) and Supplemental Security Income (SSI). Both are government programs, but the way you qualify for them varies.
SSDI is provided through payroll taxes. If you have worked for a specific number of years and have been paying FICA taxes, you can qualify. You must also be younger than 65 years old and have earned “work credits.”
The older you are, the more work credits you need. You must wait at least five months after applying for these benefits before you are approved. It is generally easier to get approved for SSDI than SSI.
SSI is needs-based. Rather than looking at your work history, they look at your financial needs. You must have less than $2,000 worth of assets if you are single, and less than $3,000 if you are married.
This program is funded through regular taxes, not Social Security. If you are eligible, you can also receive Medicaid from your state.
There is also disability retirement income and military disability. If you retire early because of a disability, your employer may pay you a disability pension. These programs are paid for by your employer.
If you are injured while serving in the military, you may receive disability compensation from the VA. If you suffer a post-service disability that is related to a disability sustained in service, you may also earn benefits.
Is my disability income taxable?
You don’t have to pay taxes on disability income if it’s coming from the government or the VA. However, any benefits paid to you by your employer are subject to tax and must be reported as wages on Form 1040.
SSI itself is not taxed, but if you have income from additional sources like self-employment, dividends, or interest, you will need to file a tax return.
SSDI benefits are also not subject to federal tax. However, a few states do tax SSDI. View the current tax rates (as of tax year 2023} below:
- Colorado – 4.4% tax on Social Security benefits for recipients under age 65
- Connecticut – 3–6.9% tax on Social Security benefits depending on the recipient’s Adjusted Gross Income (AGI) and filing status. Retirees are eligible to deduct most or all of their benefit income. Beneficiaries pay no tax on their benefits if their AGI is less than $75,000
- Kansas – Social Security benefits are taxed at the same rate as all other forms of income. This tax rate ranges from 3.2–5.7%.
- Minnesota –This state uses the same thresholds as the federal government to determine how much of a retiree’s Social Security benefits should be taxed. Those who do owe taxes on their benefits can secure a partial deduction on their tax return per Minnesota’s Social Security subtraction rule.
- Missouri – SSDI tax ranges from 0–5.3%. Filers age 62 or older with AGIs less than $85,000 ($100,000 for Married Filing Jointly) can deduct the full amount of Social Security benefits on their tax return. Those with higher incomes can deduct a portion of their Social Security benefits on their tax return.
- Montana – SSDI tax ranges from 1–5.9%. Retirees with an AGI of less than $25,000 (or $32,000 for Married Filing Jointly) are not subject to taxation on their Social Security benefits.
- Nebraska – SSDI tax ranges from 2.46–6.84%. Single filers and couples are exempt from taxation if their AGIs are less than $45,790 (or $61,760 for Married Filing Jointly).
- New Mexico- SSDI tax ranges from 1.7–5.9%. Like Montana, New Mexico uses the same thresholds as the federal government for exempting lower-earning taxpayers. Single filers and couples with an AGI of $28,000 (or $51,000 for Married Filing Jointly) can deduct up to $8,000 of Social Security tax from their tax return.
- Rhode Island – SSDI tax ranges from 3.75–5.99%. Rhode Island doesn’t tax retirees who are of retirement age and earn an AGI of less than $96,000 (or $119,750 for Married Filing Jointly).
- Utah – With a tax rate of 4.65%, this state uses the same formula as Minnesota to determine how much of a retiree’s income should be taxed. However, Utah offers a partial or full tax credit on taxable benefits. Single filers and couples with an AGI of less than $45,000 (or $75,000 for Married Filing Jointly) are eligible for a full tax credit on their Social Security benefits in 2024. Those with a higher AGI may still be eligible for a tax break, but the credit decreases by 25¢ for each dollar earned above the income limits.
- Vermont – Single filers with an AGI up to $50,000 are eligible for a full exemption from state taxation of their Social Security benefits, those who make $50,001 to $59,999 qualify for a partial exemption. For Couples filing jointly, the full exemption applies for those with an AGI up to $65,000 and is phased out for those with incomes ranging from $65,001 to $74,999. For single filers with AGIs ranging from $55,000 to $70,000 benefits are fully taxed at the state rate of 3.35–8.75%.
- West Virginia – Ranges from 3–6.5% However, the state is slowly phasing out income taxes on Social Security Benefits for low-income residents. Single filers earning up to $50,000 and couples earning up to $100,000 can deduct 100% of their Social Security benefits from their state income. Retirees with AGIs above those thresholds will have their benefits taxed at the federal rate.
To get more in-depth details about your state SSI tax rate, visit your state’s department of revenue website.
Do I have to file taxes when receiving disability benefits?
It depends on how much income you receive and–if you’re married–if your spouse receives an income. If you are married and your spouse still earns income, you must file either married filing jointly or married filing separately.
If you’re single and your only income is from disability, you may not be required to file a return. But if you choose to file anyway, you could take advantage of other credits and deductions to receive a refund. View the chart below to find out if you have to file taxes while receiving disability benefits.
| Filing Status | You must file taxes if your taxable income exceeds: |
| Single or Head of Household | $25,000 |
| Married Filing Jointly | $32,000 |
| Married Filing Separately (lived with spouse during the year) | $0 |
| Married Filing Separately (lived apart from spouse during the year) | $25,000 |
What disability benefits qualify as earned income?
If you are trying to apply for the Earned Income Tax Credit (EITC), you may be wondering if your disability income qualifies. If you earn disability retirement benefits, you can count it as earned income until you reach the age when you could receive a pension or annuity if you were not disabled.
SSDI and SSI are not considered earned income by the IRS. Military disability does not qualify as earned income, either.
Are there any tax credits for people with disabilities?
Yes, you can claim the Credit for the Elderly or the Disabled to get back at least $3,750-$7,500. You must be either 65 or older or retired on permanent and total disability.
You must also receive taxable disability income during the tax year. Finally, you must have a specific AGI or have a specific amount of unearned income–including Social Security, pensions, annuities, and disability income.
For more information, read IRS Publication 524.
