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Are SSI Disability Benefits Taxable?


February 21, 2012

This is a question PRO-TAX preparers are frequently asked. The answer to that question is “that depends…”, so read on for some guidance that will put you on the path to finding the answer to your particular disability benefits question.

First, disability income from a personally-owned Disability Income policy is not subject to tax. However, if an employer pays any part of the premium for the insurance, some or all of the disability benefits are subject to taxation.

SSI (Supplemental Security Income) benefits are completely non-taxable, and don't need to be reported on a tax return. This makes SSI benefits unlike Social Security benefits, which are sometimes partially taxable and other times completely non-taxable (please see below*). In Publication 907, Tax Highlights for Persons with Disabilities, the IRS explains, "Social Security benefits do not include SSI payments, which are not taxable. Do not include these payments in your income." Even though the Social Security Administration (SSA) manages the SSI program, SSI is not paid for by Social Security taxes in the Social Security Trust Fund. SSI is paid for by U.S. Treasury general funds.

If you would like more information about SSI, here are several useful links:  SSI Eligibility Requirements – plus “Electronic” Booklet on SSI, both available as “PDF” documents in English or Spanish, or as an audio file. The latter booklet explains basically what SSI is, who can get it, and how to apply. Understanding SSI is a 106-page MS Word Document designed to inform beneficiaries, potential beneficiaries, advocates and others in interested agencies and organizations about SSI eligibility requirements and processes.

The SSI program makes payments to people with low income who are age 65 or older, are blind, or have a disability. Blind or disabled children, as well as adults, can get SSI benefits. 

Unlike Social Security benefits, SSI benefits are not based on your prior work or a family member's prior work. In most States, SSI beneficiaries can also get Medicaid (medical assistance) to pay for hospital stays, doctor bills, prescription drugs, and other health costs.

SSI beneficiaries may also be eligible for food stamps, in fact, in some states an application for SSI also serves as an application for food assistance.

For those who are on Medicare that have low income (tied to the federal poverty level) and few resources, the state may pay Medicare premiums and, in some cases, other Medicare expenses such as deductibles and coinsurance. Some also may be able to get extra help paying for the annual deductibles, monthly premiums and prescription co-payments related to the Medicare prescription drug program (Part D). Those who have both Medicaid with prescription drug coverage and Medicare; Medicare and SSI; or state-paid Medicare premiums will automatically get this extra help and don’t need to apply.

Please note that income and resource limits for Medicare and Medicaid change each year and are not the same as the SSI income and resource limits. You can contact Social Security for the current numbers. Your local Social Services or medical assistance office can give you information about Medicaid.

You can get more information about these programs from the Centers for Medicare & Medicaid Services (CMS) or by calling the Medicare toll-free number, 1-800-MEDICARE (1-800-633-4227). If you are deaf or hard of hearing, you may call TTY 1-877-486-2048.

You might wish to refer to a related article on disabilities, and the taxability of Social Security benefits  in general. Just press the Control (Ctrl) key and click on the blue link to be taken directly to the article.

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