Definition

• SSI is a welfare supplement paid to taxpayers who elderly, blind, or disabled. The payments are intended to pay for many of the recipient's basic needs including, but not limited to, food, clothing and shelter. Although SSI is administered by the Social Security administration, funds for the program come from the general fund for the Treasury.
  
  

Criteria

• In addition to being 65 or older and blind or disabled, a taxpayer must have limited income, limited resources, be a U.S. citizen or national, live in one of the 50 states, not be absent from the country for 30 consecutive days or more and not apply for other payments for which he or she may be eligible (such as Social Security retirement).
  
  

Taxable vs. Nontaxable

• According to U.S. tax code, different sources of income are taxed at different rates. For example, 100 percent of wages usually are subject to income tax, whereas the maximum tax on Social Security benefits is 85 percent. Just as there are a variety of tax rates that apply to different income sources, there also are sources of income which don't fit into any tax rate classification and are deemed nontaxable by the IRS. SSI is a nontaxable source of income. This means that SSI payments shouldn't be included on your income tax return and you will not receive a SSA-1099 form at the end of the year summarizing the total amount of your payments.
  
  

Filing

• If SSI is your only source of income, you are not required to file a return; since one of the eligibility requirements for SSI is that you have a limited amount of income, chances are that you don't earn enough outside of SSI to file a tax return. However, there are still circumstances -- such as lottery winnings and inheritance -- in which you have to file an income tax return. For tax year 2010, you were required to file a return if you filed single and your gross income exceeds $10,750; if married and filing jointly and your gross income exceeded $20,900; if married and filing separately and your income exceeded $3,650, if you were a head of household and your income exceeded $13,450 and if qualifying as a widow or widower and your income exceeded $16,150. Your SSI does not count toward your income limit.