Illinois does not tax SSDI benefits

Illinois is one of the states that does not tax Social Security Disability Insurance (SSDI) payments. If SSDI is your only income source, you will not owe state income tax on those benefits to Illinois. This applies whether you file as a resident or nonresident of the state.

However, the federal government may still tax your SSDI depending on your total income from all sources. The state tax exemption does not change your federal tax situation. You need to look at both separately.

Key Takeaways

  • Illinois does not tax SSDI benefits under state law, so SSDI alone creates no state tax liability.
  • Federal taxation of SSDI depends on your combined income from wages, interest, pensions, and other sources — not on state rules.
  • If you have income other than SSDI, you may owe federal tax even though Illinois taxes nothing.
  • You should file a federal return if your combined income exceeds the threshold for your filing status, regardless of the Illinois exemption.

What counts as "combined income" for federal tax purposes

The federal government uses a formula called combined income to decide whether your SSDI is taxable. Combined income means your adjusted gross income plus nontaxable interest plus half of your SSDI benefits. This is not the same as your total income.

For example: if you earned $15,000 in wages, received $12,000 in SSDI, and had $500 in nontaxable interest, your combined income would be $15,000 + $500 + $6,000 (half of SSDI) = $21,500. That combined income figure determines whether any of your SSDI is taxable federally, even though Illinois ignores it entirely.

Common sources of income that count toward combined income include wages from work, self-employment income, pensions, taxable interest, dividends, capital gains, and rental income. Supplemental Security Income (SSI) does not count. Neither does Veterans' benefits or certain railroad retirement benefits.

Federal tax thresholds for SSDI in 2024

If you are single and your combined income is under $25,000, none of your SSDI is taxable federally. If it is between $25,000 and $34,000, up to 50 percent of your benefits may be taxable. If it exceeds $34,000, up to 85 percent may be taxable.

If you are married filing jointly, the thresholds are $32,000 and $44,000. If you are married filing separately, the threshold is $0 — meaning any combined income at all may trigger taxation.

These thresholds do not change year to year. They were set in 1983 and have remained the same since, even as inflation and wages have risen. This means more people cross the threshold each year without any change in the law itself.

How to report SSDI on your federal return

You receive a Form SSA-1099-SM each January showing the total SSDI you received the previous year. You use this form to report SSDI on your federal tax return, Form 1040.

If any of your SSDI is taxable, you report it on line 5b of Form 1040. The Social Security Administration provides a worksheet in the instructions to Form 1040 that walks you through the calculation. You can also use IRS Publication 915, which covers the taxation of Social Security benefits and applies the same rules to SSDI.

If you use tax software or work with a tax preparer, you enter the amount from your SSA-1099-SM, and the software or preparer calculates whether any portion is taxable based on your other income.

Illinois state return filing when you receive SSDI

You do not need to file an Illinois state return based on SSDI income alone. However, if you have other income — wages, pensions, interest, or capital gains — you may be required to file a state return depending on the amount and your age.

Illinois requires you to file a state return if your income (excluding SSDI) exceeds the standard deduction for your filing status. The standard deduction varies by age and filing status. For 2024, the standard deduction for a single filer under 65 is $2,575. For someone 65 or older, it is $3,275.

If you are unsure whether you need to file, the safest approach is to file anyway. Filing when you are not required does not create a penalty, and it may result in a refund if you had taxes withheld from other income sources.

What happens if you work while receiving SSDI

If you work and receive SSDI, your wages count toward your combined income for federal tax purposes. This can push you over the threshold where SSDI becomes taxable federally. Illinois still does not tax the SSDI itself, but the federal government may.

Additionally, if your work earnings are high enough, you may lose SSDI benefits under the Substantial Gainful Activity (SGA) rules. The SGA limit for 2024 is $1,550 per month. This is separate from the tax question — losing benefits and owing tax are two different consequences of working.

You should report your work income to the Social Security Administration and consult with a work incentives planner if you are considering employment. Many states, including Illinois, have programs that help SSDI recipients understand how work affects benefits.

Other Illinois tax considerations for people on SSDI

Illinois offers a property tax credit for people with low income, including those on SSDI. The credit is based on your household income and property taxes paid. You claim it on your Illinois state return or by filing a separate claim form with the Illinois Department of Revenue.

Illinois also does not tax retirement income for people 65 and older, which can matter if you receive a pension or have retirement account withdrawals in addition to SSDI. This is separate from the SSDI exemption but can reduce your overall state tax burden.

If you are blind or disabled, you may be may have access to to an additional standard deduction on your federal return, which reduces your federal taxable income. This is a federal benefit, not an Illinois one, but it can lower the amount of SSDI that becomes taxable federally.

Frequently Asked Questions

Do I have to file a federal tax return if I only receive SSDI?

No, not unless your combined income exceeds the threshold for your filing status. However, if you had taxes withheld from other income or are may have access to to a refundable tax credit, filing may result in a refund even if you are not required to file.

Will I owe Illinois state tax if my SSDI is taxable federally?

No. Illinois does not tax SSDI under any circumstance. If the federal government taxes part of your SSDI, Illinois will not. You may still owe federal tax, but not state tax on the SSDI itself.

What if I moved to Illinois from another state that taxes SSDI?

Once you are an Illinois resident, Illinois law applies. You do not owe Illinois tax on SSDI received before or after you moved. However, your former state may still tax SSDI you received while living there, depending on that state's rules and your residency status at the time.

Can I deduct medical expenses related to my disability on my taxes?

You can deduct unreimbursed medical expenses on your federal return if they exceed 7.5 percent of your adjusted gross income. Illinois does not allow a separate deduction for medical expenses. The federal deduction applies only if you itemize deductions rather than taking the standard deduction.

Should I have taxes withheld from my SSDI to avoid owing at tax time?

You can request federal tax withholding on your SSDI by completing Form W-4V and submitting it to the Social Security Administration. This is optional and depends on your situation. If you have other income that already covers your tax liability, withholding from SSDI may result in overwithholding and a refund.