New Mexico does not tax Social Security Disability Insurance (SSDI) benefits

If you live in New Mexico and receive SSDI, the state will not take a portion of your benefits as income tax. New Mexico is one of the states that excludes SSDI from its taxable income definition entirely. This means you do not owe state income tax on the SSDI payments you receive from Social Security, regardless of how much you earn from work or other sources.

This is different from federal income tax, which may tax your SSDI depending on your total income for the year. The federal rules are separate from state rules, and New Mexico's decision not to tax SSDI does not change what you owe to the IRS. You may still need to file a federal return and potentially pay federal tax on a portion of your benefits if your combined income exceeds certain thresholds.

Key Takeaways

  • New Mexico does not tax SSDI benefits at the state level, so you will not owe New Mexico income tax on these payments.
  • Federal income tax is separate from state tax, and the IRS may still tax part of your SSDI if your total income is high enough.
  • Your "combined income" for federal tax purposes includes SSDI, wages, interest, and other sources, not just your SSDI alone.
  • You should file a federal tax return if your combined income exceeds the threshold for your filing status, even though New Mexico will not tax your SSDI.

How federal tax on SSDI works, even in New Mexico

The federal government uses a formula called "combined income" to decide whether to tax your SSDI. Combined income includes your adjusted gross income, plus nontaxable interest, plus half of your SSDI benefits. If your combined income exceeds $25,000 (if you file single) or $32,000 (if you file married filing jointly), the IRS will tax up to 85 percent of your benefits.

This means that even though New Mexico will not take state tax from your SSDI, you may still owe federal tax. For example, if you are single, receive $1,200 per month in SSDI, and earn $20,000 from part-time work, your combined income would be around $27,200—above the $25,000 threshold. In that case, part of your SSDI would be subject to federal income tax.

The amount of SSDI that gets taxed depends on how far your combined income exceeds the threshold. The IRS has a worksheet in Publication 915 that walks through the calculation. Many people find it helpful to work with a tax preparer who understands SSDI, because the calculation is not straightforward.

What counts toward your combined income

Combined income includes more than just SSDI. It includes wages from work, self-employment income, interest and dividends, rental income, pensions, and distributions from retirement accounts. It also includes half of your SSDI benefits themselves. Certain types of income—like Supplemental Security Income (SSI) or workers' compensation—do not count toward combined income.

If you are married and file jointly, both spouses' income counts toward the combined income threshold, even if only one of you receives SSDI. This can push a household over the threshold more easily than if you were filing single.

When you need to file a federal return

You must file a federal income tax return if your combined income exceeds the threshold for your filing status. For 2024, the thresholds are $25,000 (single) and $32,000 (married filing jointly). Even if you do not owe tax, filing a return may be worth doing if you had federal income tax withheld from wages or if you are may have access to to refundable tax credits like the Earned Income Tax Credit.

Social Security does not automatically withhold federal income tax from SSDI payments. If you think you will owe tax, you can ask Social Security to withhold a percentage of your benefit by completing Form W-4V and sending it to your local Social Security office. This can help you avoid a large tax bill at the end of the year.

New Mexico tax forms and reporting

Because New Mexico does not tax SSDI, you do not need to report your SSDI on a New Mexico state tax return. If you file a federal return, you will report your SSDI on Form 1040 (the federal form), but you will not need to file a separate New Mexico return just because of your SSDI income.

If you have other income sources—such as wages, self-employment income, or retirement account distributions—you may need to file a New Mexico return for those sources. New Mexico taxes wages and most other income types. Check the New Mexico Department of Revenue website or speak with a tax preparer if you are unsure whether you need to file a state return.

How to report SSDI on your federal return

On your federal Form 1040, you will report your SSDI benefits on line 5b. You will also receive a Social Security Benefit Statement (Form SSA-1099) in January showing how much SSDI you received in the previous year. Use this form to fill in your federal return accurately.

If part of your SSDI is taxable, you will report the taxable portion on line 5b of Form 1040. The IRS worksheet in Publication 915 tells you how much is taxable. Many tax software programs can walk you through this calculation, or a tax preparer can help you figure it out.

Frequently Asked Questions

Do I have to pay New Mexico state income tax on my SSDI?

No. New Mexico does not tax SSDI benefits. You will not owe state income tax on your SSDI payments, no matter how much you receive or what other income you have.

If New Mexico does not tax SSDI, do I still owe federal tax?

Possibly. New Mexico's decision not to tax SSDI does not affect federal tax. The IRS may tax part of your SSDI if your combined income (SSDI plus other income) exceeds $25,000 (single) or $32,000 (married filing jointly). You will need to check your combined income to know for sure.

What if I work part-time and receive SSDI in New Mexico?

Your wages plus half your SSDI count toward your combined income for federal tax purposes. If the total exceeds the threshold, part of your SSDI becomes taxable federally. New Mexico will not tax either your wages or your SSDI, but the IRS may tax the SSDI portion.

How do I know if I need to file a federal return?

Add your wages, self-employment income, interest, dividends, and half your SSDI. If the total exceeds $25,000 (single) or $32,000 (married filing jointly), you should file a federal return. Even if you do not owe tax, filing may get you a refund if taxes were withheld from your wages.

Can I have federal tax withheld from my SSDI payments?

Yes. Complete Form W-4V and send it to your local Social Security office. You can request that Social Security withhold 7, 10, 15, or 25 percent of your monthly benefit. This can help you avoid owing a large amount at tax time.