SSDI is taxed the same way in Maryland as everywhere else in the United States

Maryland does not have a separate state tax on SSDI benefits. The federal government decides whether your SSDI counts as taxable income, and Maryland follows that same rule. If the IRS says your benefits are taxable, you owe federal tax on them. If they are not taxable under federal rules, Maryland will not tax them either.

The key number is your combined income. This is not just your SSDI — it includes wages, interest, dividends, and half of your SSDI benefits added together. If that combined income exceeds a certain threshold, part of your SSDI becomes taxable. The threshold is the same for everyone, regardless of state.

Maryland does tax other income sources — wages, pensions, retirement account withdrawals — at its own state rate. But SSDI itself is exempt from Maryland state income tax. You will not see a Maryland tax bill on your SSDI, even if part of it is taxable federally.

Key Takeaways

  • Maryland does not tax SSDI benefits at the state level, but the federal government may tax them if your combined income is high enough.
  • Combined income includes half your SSDI plus all other income sources like wages, interest, and pensions.
  • If your combined income exceeds $25,000 (single filer) or $32,000 (married filing jointly), you may owe federal tax on up to 85 percent of your SSDI.
  • You report SSDI taxation on your federal tax return using Form 1040 and Schedule 1, not on any Maryland state form.
  • If you receive both SSDI and SSI, only SSDI can be taxed — SSI is never taxable at either the federal or state level.

How the federal combined income threshold works

The IRS uses a formula to decide if your SSDI is taxable. Start with your adjusted gross income (wages, self-employment income, interest, dividends, and other sources). Add half of your SSDI benefits to that number. That total is your combined income.

If you file as single and your combined income is $25,000 or less, your SSDI is not taxable. If it is between $25,000 and $34,000, you may owe tax on up to 50 percent of your benefits. If it exceeds $34,000, you may owe tax on up to 85 percent of your benefits.

If you file as married filing jointly, the thresholds are $32,000 and $44,000. If you are married filing separately, the threshold is $0 — meaning almost all of your SSDI will be taxable if you file that way.

These thresholds have not changed since 1984. They do not adjust for inflation, so more people cross them each year as wages and other income rise.

What counts toward combined income in Maryland

Combined income includes more than just your SSDI. The IRS counts wages from work, self-employment income, interest from savings accounts and bonds, dividends from stocks, capital gains, rental income, pension distributions, and withdrawals from retirement accounts like IRAs or 401(k)s.

It also includes income from a spouse if you file jointly. If your spouse works or receives retirement income, that counts toward the combined income threshold even if your spouse does not receive SSDI.

Some income does not count. Supplemental Security Income (SSI) is excluded. Tax-exempt interest from municipal bonds is excluded. Gifts and inheritances do not count. Workers' compensation and some other disability payments may be excluded depending on how they are structured.

If you are unsure whether a specific income source counts, the IRS Publication 915 lists all sources. You can also contact the Social Security Administration directly — they can review your specific situation and tell you whether your benefits will be taxable.

How to report SSDI on your federal tax return

You report SSDI taxation on your federal Form 1040 (the main individual income tax return). The Social Security Administration sends you a Form SSA-1099 each January showing how much SSDI you received in the previous year. You use that number to fill out your return.

If you have other income sources, you will also report those on Form 1040 and its schedules. Once you have reported all income, you calculate your combined income using the IRS formula. If it exceeds the threshold for your filing status, you then calculate how much of your SSDI is taxable using a worksheet in the Form 1040 instructions or IRS Publication 915.

You do not file anything with Maryland. Maryland has no state SSDI tax form and does not require you to report SSDI separately on your state return. If you owe Maryland state income tax on other sources (like wages), you file Form 502 with the Maryland Department of Revenue, but SSDI does not appear on it.

If you are unsure how to calculate the taxable portion, a tax preparer or the IRS Free File program (available at irs.gov if your income is below a certain level) can walk you through it.

When you might owe estimated tax payments

If you know your SSDI will be taxable and you do not have taxes withheld from your benefits, the IRS may require you to make quarterly estimated tax payments. This happens when you owe more than $1,000 in tax for the year and do not have enough tax withheld from other sources.

You can avoid estimated payments by asking Social Security to withhold federal income tax directly from your SSDI check. You do this by completing Form W-4V and sending it to your local Social Security office. You can choose to have 7, 10, 12, or 22 percent of your benefit withheld each month.

Many people find withholding easier than calculating and paying estimated taxes four times a year. You can change your withholding amount or stop it at any time by submitting a new Form W-4V.

SSDI versus SSI: which one is taxable

Only SSDI (Social Security Disability Insurance) can be taxed. SSI (Supplemental Security Income) is never taxable, at either the federal or state level, no matter how much other income you have.

The two programs are separate. SSDI is based on your work history or your parent's work history (if you became disabled before age 22). SSI is a needs-based program for people with low income and few resources. You can receive both at the same time, but only the SSDI portion is subject to taxation.

Your Social Security statement and your Form SSA-1099 will show which program you receive. If you are unsure, you can call Social Security at 1-800-772-1213 and ask them to clarify.

What happens if you do not report taxable SSDI

If your SSDI is taxable and you do not report it on your federal return, the IRS will eventually notice. Social Security sends the IRS a copy of every Form SSA-1099, so the IRS knows how much you received. If you do not report it, the IRS will send you a notice of underreported income and demand payment plus penalties and interest.

The penalty for not reporting income is usually 20 percent of the unpaid tax, plus interest that compounds daily. If the IRS determines the underreporting was intentional, the penalty can be as high as 75 percent. It is far cheaper to report the income correctly from the start.

If you made a mistake on a prior year return, you can file an amended return using Form 1040-X. The IRS generally allows you to amend returns going back three years. Filing an amended return voluntarily before the IRS contacts you can reduce or eliminate penalties.

Frequently Asked Questions

Does Maryland tax SSDI at the state level?

No. Maryland does not tax SSDI benefits. However, the federal government may tax your SSDI if your combined income exceeds the IRS threshold. You report federal SSDI taxation on your federal return, not on any Maryland form.

What if I work and receive SSDI — how does that affect my taxes?

Your wages count toward your combined income, which determines whether your SSDI is taxable. If you earn wages and receive SSDI, your combined income is likely to exceed the threshold, making your SSDI taxable. You report both your wages and your SSDI on Form 1040.

Can I reduce my SSDI taxes by withholding?

Yes. You can ask Social Security to withhold federal income tax from your SSDI check by submitting Form W-4V. You choose the withholding percentage (7, 10, 12, or 22 percent), and Social Security deducts it each month. This reduces the tax you owe when you file your return.

If I receive both SSDI and SSI, are both taxable?

No. Only SSDI can be taxed. SSI is never taxable at the federal or state level. If you receive both programs, only the SSDI portion counts toward your combined income for tax purposes.

What if my combined income is exactly at the threshold?

If your combined income equals the threshold (for example, exactly $25,000 for a single filer), your SSDI is not taxable. The threshold is the point at which taxation begins, not the point at which it is certain. You only owe tax if your combined income exceeds the threshold.