Illinois does not tax Social Security Disability Insurance (SSDI) benefits

If you live in Illinois and receive SSDI, you will not owe state income tax on those benefits. Illinois is one of a small group of states that excludes SSDI from taxable income entirely. This means you do not report your SSDI payments on your Illinois state tax return, even if you file one.

This protection applies only to SSDI. If you also receive Supplemental Security Income (SSI), railroad retirement benefits, or other forms of income, those have different tax treatment. The federal government may still tax your SSDI under certain conditions, but Illinois will not.

You may still need to file a state return for other reasons — to claim a refund, to report other income, or to meet filing requirements — but your SSDI itself creates no state tax liability in Illinois.

Key Takeaways

  • Illinois does not tax SSDI benefits at the state level, so you owe no Illinois income tax on those payments.
  • The federal government may still tax your SSDI if your combined income exceeds certain thresholds, but this is separate from Illinois state tax.
  • You do not report SSDI on your Illinois state return, though you may file for other reasons such as claiming a refund on withheld taxes.
  • If you receive SSI instead of SSDI, or in addition to SSDI, that income has different rules and may affect your tax situation.

How Illinois differs from other states on SSDI taxation

Most states follow the federal rule: they tax SSDI the same way the federal government does. Illinois is different. It has chosen to exclude SSDI from state taxable income, which means residents get a break that people in other states do not.

This matters if you are considering moving or if you live near a state border. If you move to a state that does tax SSDI — such as Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, Rhode Island, or Vermont — your tax situation will change. You would then owe state tax on your SSDI in the year you move and in all years after.

If you move out of Illinois, contact the state you are moving to about how it treats SSDI. Some states have their own exceptions or phase-out rules that differ from the federal approach.

Federal taxation of SSDI is separate from Illinois state tax

Even though Illinois does not tax SSDI, the federal government may. Whether your SSDI is taxable at the federal level depends on your "combined income" — a calculation that includes your SSDI, other income, and nontaxable interest.

If your combined income is below $25,000 (single) or $32,000 (married filing jointly), your SSDI is not taxable federally. If it is above those thresholds, up to 50 percent or 85 percent of your SSDI may be taxable, depending on how far above the threshold you are.

This federal tax has nothing to do with Illinois. You report it on your federal return (Form 1040) and pay it to the IRS. Your Illinois return remains unaffected by SSDI income, regardless of whether you owe federal tax.

What income counts toward the federal SSDI tax threshold

Combined income includes your SSDI plus any wages, self-employment income, interest, dividends, capital gains, and certain other sources. It also includes nontaxable interest from municipal bonds — a rule that catches many people off guard.

It does not include certain benefits: Supplemental Security Income (SSI), railroad retirement tier 1 benefits, or workers' compensation. If you receive those alongside SSDI, they do not push you over the federal threshold.

If you are married and file jointly, both spouses' income counts. If you are married and file separately, the rules become much stricter and often result in more of your SSDI being taxable. Consult a tax professional if you are married and considering filing separately.

Reporting SSDI on your Illinois return

You do not enter your SSDI amount anywhere on your Illinois return. Illinois Form IL-1040 (the state income tax return) has no line for SSDI income because the state does not tax it.

If you file a federal return because your combined income exceeds the federal threshold and some of your SSDI is taxable federally, you will report that on your federal Form 1040. You may also report it on your Illinois return if you choose to file one, but it will not create any Illinois tax liability.

Many people who receive SSDI do not file an Illinois return at all because they have no other income and no reason to file. You are not required to file if SSDI is your only income.

When you should file an Illinois return despite receiving only SSDI

Even if SSDI is your only income, you may want to file an Illinois return to claim a refund. If your employer withheld state income tax from wages in a previous job, or if you made estimated tax payments, filing can recover that money.

You should also file if you have other income — wages, self-employment income, interest, or dividends — even if that income is small. Illinois has a filing threshold, and if your total income (excluding SSDI) exceeds it, you must file.

If you are unsure whether you need to file, contact the Illinois Department of Revenue or a tax professional. Filing when you do not have to costs nothing and may result in a refund.

SSI and other benefits have different tax rules

If you receive Supplemental Security Income (SSI) instead of SSDI, or in addition to SSDI, your tax situation is different. SSI is never taxable — not at the federal level and not in Illinois. You do not report it on any tax return.

The same is true for railroad retirement tier 1 benefits and workers' compensation. These are not taxable in Illinois or federally, and they do not count toward the federal SSDI tax threshold.

If you are unsure which benefit you receive, check your Social Security statement or contact the Social Security Administration. The benefit name on your award letter will tell you whether it is SSDI, SSI, or another program.

Frequently Asked Questions

Will moving to another state change how my SSDI is taxed?

Yes. If you move to a state that taxes SSDI, you will owe state tax on your benefits starting in the year you move. Illinois does not tax SSDI, but nine other states do. Check the tax rules of any state you are considering before you move.

Do I have to file an Illinois return if I only receive SSDI?

No, you are not required to file if SSDI is your only income. However, you may want to file if you had taxes withheld from previous wages or made estimated payments, because filing can recover that money as a refund.

What if I receive both SSDI and wages from a job?

You must file an Illinois return if your wages exceed the state filing threshold. Your SSDI is not taxed by Illinois, but your wages are. Report your wages on your Illinois return as you normally would.

Does the federal SSDI tax affect what I owe Illinois?

No. Federal and state taxes are separate. If you owe federal tax on your SSDI, you report it on your federal return and pay the IRS. Illinois does not tax SSDI, so you owe nothing to the state based on your SSDI income.

Is there a way to reduce the federal tax on my SSDI?

The federal tax depends on your combined income. If you can reduce other income — for example, by timing capital gains or managing investment income — you may lower the amount of SSDI that is taxable. A tax professional can review your situation and suggest strategies.