If you live in Illinois and receive Social Security disability, you may wonder, “are SSDI benefits taxable?” In Illinois, state laws exclude SSDI benefits from taxation. In most states, SSDI benefits are not taxed if Social Security disability is your only source of income.

If you need help with SSDI benefits in Illinois, call Ankin Law in Chicago at 872-529-9377. Our disability attorneys offer a free consultation to review your case.

Taxability of SSDI Benefits in Illinois

In Illinois, Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) are exempt from tax liability under state laws. Most Illinois residents with disabilities will qualify for benefits through one of these two programs.

Social Security Disability Insurance (SSDI)

The federal government provides SSDI benefits to support individuals who have worked for at least 10 years in the past, but have a medical condition that makes it difficult for them to continue working. SSDI pays the largest benefit amounts for disabilities, but payments are based on earned income and paid taxes. In 2024, the average SSDI payment in Illinois was $1,413.31 per month. The maximum possible SSDI payment was $3,822 per month based on work history and personal income.

To qualify for SSDI disability benefits in Illinois, you must have a previous work history, a record of paid Social Security taxes, and a medical condition that prevents or makes it difficult to work. The Social Security Administration (SSA) guidelines show how to prove you can’t work.

Supplemental Security Income (SSI)

Individuals who have limited income and assets typically qualify for SSI benefits. However, people who don’t have a long previous work history or who have not worked recently enough to qualify for SSDI can also get disability benefits through SSI. In 2024, the average SSI payment in Illinois is $651.63 per month. The maximum possible SSI payment was $943 per month.

In Illinois, SSDI benefits are not taxable at the state level, only at the federal level. Only 12 states currently charge state income tax on Social Security disability benefits.

How Does This Impact Your Tax Liability?

SSDI tax filing requirements are based on federal laws that may impact your tax liability for SSDI benefits in Illinois. SSDI tax filing requirements are based on the following conditions:

Provisional Income

The Internal Revenue Service (IRS) uses provisional income to determine whether you will have to pay federal income tax on part of your Social Security disability benefits. According to federal laws, you may be required to pay taxes on your SSDI benefits if your provisional income exceeds the thresholds or limits for your filing status.

Generally, people who get SSDI benefits have minimal income from other sources. However, if a person receiving SSDI benefits has other sources of income, he or she may be required to report disability benefits on tax returns. SSDI tax filing requirements depends on the recipient’s combined income, which includes half of their SSDI benefits plus all other income and tax-exempt interest. Provisional income requirements include:

  • Single Filers – If your income falls between $25,000 and $34,000 per year, you need to report up to 50% of your SSDI benefits when you report your taxable income. If your income exceeds $34,000 per year, up to 85% of your SSDI benefits may be taxable.
  • Married Filers – If you are married and file a joint tax return with your spouse, up to 50% of your SSDI may be taxable if your combined income is between $32,000 and $44,000. If your combined income is over $44,000, you may need to pay federal income taxes on up to 85% of your SSDI benefits.

Retroactive Payments

If you are disabled, you may be eligible for SSDI retroactive pay or back pay. While they may sound the same, they are different types of payments with different payment guidelines and regulations established by the SSA.

  • SSDI Retroactive Payments – SSDI retroactive pay is the amount of Social Security disability benefits that you are owed by the SSA for any eligible time that you were disabled prior to filing your initial SSDI application. If you are owed retroactive pay, it will be capped at a maximum of 12 months and paid to you by the SSA in one lump sum.

In some cases, applicants may wait to apply for SSDI after becoming disabled because SSA requirements state that a disability must last or be expected to last for more than 12 months to qualify. When this occurs, the applicant will be entitled to a retroactive payment of benefits.

  • SSDI Back Payments – SSDI back pay is the amount of SSDI benefits that you are owed by the SSA for the time that you were disabled after filing your initial SSDI application, but before your application was approved and your monthly payments began. If you are owed back pay, it will be paid to you by the SSA in one lump sum.

Since most SSDI applications take from 3 to 6 months for approval, applicants who became disabled during that waiting period will be entitled to SSDI back pay. SSDI back pay is usually sent to recipients after an application is approved however, it does not include any interest. Obtaining SSDI back pay can make your income higher in the year you receive it, and your SSDI disability benefits may be taxable.

Tax Credits

The Senior Tax Credit for the Elderly and Disabled is also available to social security disability recipients, but their income must be low. Income over $17,500 for a single filer and $25,000 for a married person filing jointly will eliminate qualification for this tax credit. If you live in Illinois and receive Senior Tax Credits for a disability, it’s important to consult when transitioning from a work life to social security disability.

How Your SSDI Attorney Can Help Manage Taxable SSDI Benefits

In Illinois, SSDI disability benefits provide essential financial support for disabled individuals who can’t work. However, many SSDI recipients are uncertain about whether their benefits are taxable and, if so, how much they will owe in taxes. Social Security disability attorneys can help you because they know whether your SSDI benefits are taxable, how to report them correctly, and how to minimize your tax liability.

The IRS states that your SSDI benefits may be taxable when one-half of your benefits, plus all other income, exceeds an income threshold based upon your filing status. To understand taxability on your SSDI disability benefits, it’s essential to know the types of cases SSDI attorneys handle and to keep accurate records. Your Social Security disability attorney can inform you of IRS requirements on SSDI taxes and help you keep accurate records that show proof of your disability. Here are some helpful tips:

Keep Accurate Records

  • Form SSA-1099 – Make sure you keep your SSA-1099 form that is sent to you directly by the Social Security Administration. This form has important information which details your total SSDI benefits received for the year.
  • Income Documentation – It is essential to keep accurate records of all other income sources, including wages, interest, dividends, and other taxable income. Your attorney can explain important documentation that can impact SSDI taxability.
  • Medical Expenses – When you are disabled, you must keep documentation of your medical treatments and out-of-pocket medical expenses. They may be deductible if they exceed a certain percentage of your AGI.

Maximize Deductions and Credits

  • Medical Expense Deduction – If your medical expenses for the year exceed 7.5% of your adjusted gross income (AGI), your attorney can show you how to deduct the excess amount on your tax return.
  • Standard vs. Itemized Deductions – You should choose between standard and itemized deductions based on which is more beneficial for your tax situation. Your attorney can review your records to help you decide.
  • Earned Income Tax Credit (EITC) – If you have earned income from any source, you may qualify for the earned income tax credit, which can reduce the amount of tax you owe on SSDI disability benefits.

Stay Informed About Your SSDI Benefits

  • Tax Law Changes – If you receive disability benefits from the federal government, it’s important to keep up to date with any changes in tax laws that may impact your SSDI benefits and required tax payments. This can be a difficult task, especially for elderly and disabled individuals, without help from a Social Security disability attorney.
  • IRS Publications – It’s helpful to refer to IRS publications and resources that are aimed at SSDI recipients. This information offers the latest information and guidelines available on Social Security disability benefits and tax liabilities.

If you need help with taxability on SSDI disability in Illinois, contact us. Our Chicago disability attorneys can provide a free case review. Call 872-529-9377.