State tax treatment of SSDI depends on your state and your total income

Whether you file state income tax on Social Security Disability Insurance (SSDI) depends on two things: which state you live in, and whether your total income crosses that state's threshold for filing. Most states do not tax SSDI at all. A handful—including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont—tax SSDI the same way they tax regular Social Security retirement benefits, which means they tax only the portion that would be taxable under federal rules. A few states have their own rules that differ from federal treatment.

The federal government does not tax SSDI for most people. You owe federal tax on SSDI only if your "combined income" (SSDI plus half your SSDI plus other income like wages or interest) exceeds $25,000 if you file single, or $32,000 if you file married filing jointly. Even then, only up to 85 percent of your SSDI can be taxed. Most SSDI recipients never reach these thresholds and owe no federal tax on their benefits.

The key step is finding out whether your state taxes SSDI at all. If it does not, you may not need to file a state return even if you file federal. If your state does tax SSDI, you will use the same income calculation as the federal government—combined income—to determine whether you owe state tax.

Key Takeaways

  • Most states do not tax SSDI; eleven states tax it only to the extent the federal government does, using the same combined income calculation.
  • The federal threshold for owing tax on SSDI is $25,000 combined income for single filers and $32,000 for married filers; most SSDI recipients fall below this and owe no federal tax.
  • You must check your specific state's rules, because a few states have unique treatment that differs from federal law.
  • If you live in a state that does not tax SSDI and your only income is SSDI, you typically do not need to file a state return, even if you file federal.

Which states tax SSDI and which do not

Eleven states currently tax SSDI: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont. All eleven use the federal combined income test to determine how much SSDI is taxable. This means if you would owe federal tax on your SSDI under the federal rules, you would also owe state tax in these states. If you would not owe federal tax, you would not owe state tax in these states either.

The remaining 39 states plus Washington, D.C., do not tax SSDI at all. This includes large states like California, Florida, New York, and Texas. If you live in any of these states, your SSDI is not subject to state income tax, regardless of how much you receive or what other income you have.

State tax rules can change, and some states have phased in or phased out SSDI taxation over time. Before you file, confirm your state's current treatment by checking your state's department of revenue website or calling their tax information line.

How the federal combined income test works

The federal government uses a formula called combined income to decide whether any of your SSDI is taxable. Combined income is calculated as: your adjusted gross income (AGI) plus nontaxable interest plus half of your SSDI benefits.

For example, suppose you receive $1,500 per month in SSDI ($18,000 per year) and have no other income. Your combined income is $0 + $0 + ($18,000 × 0.5) = $9,000. Since $9,000 is below the $25,000 threshold for single filers, none of your SSDI is taxable, and you owe no federal tax.

Now suppose you have $20,000 in wages from part-time work and $18,000 in SSDI. Your combined income is $20,000 + $0 + $9,000 = $29,000. This exceeds the $25,000 threshold by $4,000. You would owe federal tax on the lesser of (1) 85 percent of your SSDI, or (2) 85 percent of the amount your combined income exceeds the threshold. In this case, 85 percent of $4,000 is $3,400, so up to $3,400 of your $18,000 SSDI could be taxable. The actual amount depends on your tax bracket and other factors.

If you live in one of the eleven states that tax SSDI, that state uses the same combined income calculation and the same thresholds ($25,000 single, $32,000 married filing jointly) to determine state taxability.

What counts as income for the combined income test

Combined income includes wages, self-employment income, interest, dividends, capital gains, rental income, and other forms of earned and unearned income. It does not include Supplemental Security Income (SSI), which is a separate needs-based program. It also does not include certain types of nontaxable income like workers' compensation or certain veterans' benefits, though nontaxable interest is specifically added back into the combined income calculation.

Work incentives under SSDI—such as the Student Earned Income Exclusion (SEIE) or the Plan to Achieve Self-Support (PASS)—can reduce the amount of work income counted toward combined income. If you are using a work incentive, your combined income may be lower than your actual earnings, which could keep you below the taxability threshold.

Supplemental income from family members, gifts, or loans do not count as income for tax purposes and do not affect your combined income calculation.

When you must file a state return

If you live in a state that does not tax SSDI and your only income is SSDI, you do not have to file a state income tax return. However, if you have other income—wages, self-employment income, interest, or dividends—you may be required to file a state return even if you owe no state tax on your SSDI. State filing requirements vary by income level and type of income, so check your state's rules.

If you live in one of the eleven states that tax SSDI, you must file a state return if your combined income exceeds the state's filing threshold, which is usually the same as the federal threshold ($25,000 single, $32,000 married filing jointly) but can vary. Some states have lower thresholds for certain types of income.

Even if you are not required to file, you may want to file anyway if you had taxes withheld from wages or other income, because filing allows you to claim a refund. You can also claim the Earned Income Tax Credit (EITC) on your state return if you have work income and meet the income limits, which can result in a refund even if you owe no tax.

How to report SSDI on your state return

If you must file a state return and your state taxes SSDI, you will report your SSDI on a line similar to the federal return. Your state will provide a form or worksheet to calculate how much of your SSDI is taxable using the combined income test. The instructions that come with your state tax form will walk you through this calculation.

You will receive a Form SSA-1099-SM from Social Security each January showing your SSDI benefits for the prior year. Use this form to report your SSDI on both your federal and state returns. The form shows the gross amount of benefits you received; it does not calculate how much is taxable.

If you use tax software or a tax preparer, make sure to tell them you receive SSDI and which state you live in. The software or preparer will explore the correct rules for your state and calculate your taxable SSDI amount.

What happens if you live in a state that taxes SSDI but moved there after receiving benefits

If you moved to a state that taxes SSDI after you began receiving benefits, you are subject to that state's tax rules starting in the tax year you became a resident. Some states allow a transition period or have special rules for people who moved in mid-year, but most do not. Check your new state's department of revenue to understand how the move affects your tax filing.

If you moved from a state that taxes SSDI to a state that does not, you will no longer owe state tax on your SSDI starting in the tax year you became a resident of the new state. You may still owe tax to your former state for the portion of the year you lived there, depending on that state's rules.

Frequently Asked Questions

Do I have to file federal taxes if I only receive SSDI?

No, not unless your combined income exceeds $25,000 (single) or $32,000 (married filing jointly). Most SSDI recipients have combined income below these thresholds and do not have to file federal taxes. However, if you had taxes withheld from other income or want to claim a refundable credit like the EITC, you should file anyway to get your refund.

If my state does not tax SSDI, do I still have to file a state return?

Only if you have other income that pushes you above your state's filing threshold. If SSDI is your only income, you typically do not have to file a state return in states that do not tax SSDI. Check your state's specific filing requirements, which may vary by age and type of income.

What is the difference between combined income and adjusted gross income?

Adjusted gross income (AGI) is your total income minus certain deductions, like contributions to a traditional IRA. Combined income for SSDI taxation purposes is your AGI plus nontaxable interest plus half your SSDI. Combined income is higher than AGI because it adds back half your SSDI, which is why you can owe tax on SSDI even if your AGI is low.

If I use a work incentive like PASS, does that reduce my taxable SSDI?

Work incentives like PASS reduce the amount of work income counted toward your combined income, which can lower your combined income and reduce the amount of SSDI that is taxable. However, the work incentive itself does not directly reduce your SSDI; it reduces the income counted in the combined income formula. Talk to your work incentive representative or a tax preparer about how your specific work incentive affects your tax situation.

Do I need to report my SSDI on my state return if I do not owe state tax?

If your state does not tax SSDI, you do not report it on your state return. If your state does tax SSDI but you do not owe state tax because your combined income is below the threshold, you still may need to report your SSDI on your return depending on your state's form instructions. Check your state's tax form or instructions to be sure.