SSDI is exempt from state income tax in most states, but a few states tax it anyway

Social Security Disability Insurance (SSDI) payments are not subject to federal income tax for most recipients, and that same exemption extends to state income tax in 41 states. However, Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont do tax SSDI as income. The tax you owe depends on your state, your total income, and whether you have other sources of income that push you over a threshold.

The federal rule is straightforward: SSDI itself is never taxable income at the federal level. But states set their own rules. Some states follow federal law exactly. Others have written their own tax codes that treat SSDI differently — usually by taxing it like wages or other income, or by taxing only the portion of your SSDI that exceeds a certain amount.

If you live in one of the 11 states that tax SSDI, you will owe state income tax on your SSDI payments in the same way you would on wages. The amount you owe depends on your tax bracket in that state and your total income from all sources.

Key Takeaways

  • Forty-one states do not tax SSDI at all; eleven states (Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont) tax SSDI as ordinary income.
  • Federal law never taxes SSDI, so you will never owe federal income tax on your SSDI payments regardless of where you live.
  • In states that tax SSDI, the amount you owe is based on your state tax bracket and your total income from all sources combined.
  • You may be able to reduce your state tax burden if you have other income sources, because some states allow deductions or credits that lower your taxable SSDI.

Which states tax SSDI and which do not

The eleven states that currently tax SSDI are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont. Each of these states treats SSDI as taxable income on the state return, though some offer partial exemptions or deductions that can lower the amount you actually owe.

Every other state — 41 in total — does not tax SSDI. If you live in one of those states, you file your state return but do not report your SSDI as income. You may still owe state tax on other income, such as wages, pensions, interest, or rental income, but the SSDI itself is exempt.

If you moved to a different state after you started receiving SSDI, your tax obligation changes on January 1 of the year you become a resident of the new state. Some states have residency rules that take effect when ready; others have a waiting period. Check with your new state's tax authority to confirm when your SSDI becomes taxable or exempt.

How much state tax you owe if your state taxes SSDI

In the eleven states that tax SSDI, the amount you owe is calculated using the state's standard income tax brackets and rates. Your SSDI is added to your other income — wages, pensions, interest, capital gains, and so on — and you pay tax on the combined total at your state's marginal rate.

For example, if you live in Connecticut and receive $1,500 per month in SSDI ($18,000 per year) and have no other income, you would report $18,000 as taxable income on your Connecticut return. Connecticut's tax brackets for 2024 start at 3% on income up to $21,000, so you would owe roughly $540 in state tax for the year. If you also have $10,000 in pension income, your total taxable income would be $28,000, and you would owe tax at a higher rate on the portion above $21,000.

Some states offer partial relief. For instance, Montana allows a deduction for SSDI recipients over age 65. Kansas exempts SSDI for recipients whose total income is below a certain threshold. Check your state's tax code or contact your state tax authority to learn whether your state offers any deductions, credits, or exemptions that could lower your SSDI tax bill.

Whether you have to file a state return if you receive SSDI

You must file a state income tax return if you live in a state that taxes SSDI and your income exceeds that state's filing threshold. The threshold varies by state and by filing status (single, married, head of household). Even if you owe no tax, you may be required to file if your income is above the threshold.

In states that do not tax SSDI, you must file a state return only if you have other income that exceeds the filing threshold — such as wages, self-employment income, or taxable interest. SSDI alone does not trigger a filing requirement in those states.

To find your state's filing threshold, visit your state tax authority's website or call their taxpayer information line. The threshold is usually lower for people over age 65 or for people with disabilities, so check whether you may have access to for a higher threshold based on your age or status.

How SSDI interacts with other income sources

If you have income from multiple sources — SSDI, wages, a pension, rental income, or interest — your state tax bill depends on the total. In states that tax SSDI, all of your income is combined and taxed together. This means that other income can push you into a higher tax bracket, increasing the tax you owe on your SSDI.

Conversely, if you have losses or deductions, they may reduce your total taxable income and lower the tax on your SSDI. For example, if you have self-employment income but also have business expenses, the net profit (income minus expenses) is what counts as taxable income. Similarly, if you have capital losses, they can offset capital gains.

Some people work part-time while receiving SSDI. If you do, your wages are taxable in every state. In states that tax SSDI, both your wages and your SSDI are taxable. In states that do not tax SSDI, only your wages are taxable. Work incentive programs like the Student Earned Income Exclusion or the Plan to Achieve Self-Support (PASS) may allow you to exclude some of your work income from your SSDI benefit calculation, but they do not affect your state tax liability — your state taxes what you actually earn.

Reporting SSDI on your state return

On your state income tax return, SSDI is reported on the same line as other income, or on a separate line if your state has one. Most states use a form similar to the federal Form 1040, with a line for Social Security income. You will need your Social Security statement (Form SSA-1099) to report the correct amount.

If you live in a state that does not tax SSDI, you typically do not report it on your state return at all — you straightforward skip that line or mark it as exempt. If you live in a state that taxes SSDI, you report the full amount shown on your SSA-1099.

Some states allow you to file electronically through their tax authority's website or through tax software. Others require a paper return. Check your state's tax authority website for filing instructions and important date. The federal important date is April 15, but some states have different important date.

What to do if you owe state tax on SSDI

If you owe state tax on your SSDI, you can pay it when you file your return, or you can arrange a payment plan with your state tax authority. Some states allow you to have tax withheld from your SSDI payments, similar to federal withholding, so you do not have to pay a lump sum at tax time.

To request withholding, contact your state tax authority and ask about the process. You will need to complete a form (the name varies by state) and submit it to Social Security. Social Security will then withhold the amount you request from your monthly SSDI payment and send it to your state.

If you cannot pay the full amount you owe, contact your state tax authority about a payment plan or an offer in compromise. Most states allow you to pay over time without penalty if you set up a formal arrangement before the important date.

Frequently Asked Questions

Do I owe federal income tax on my SSDI?

No. SSDI is never taxable at the federal level, regardless of how much you receive or what other income you have. This is true in every state and every year. You do not report SSDI on your federal return unless a portion of your Social Security benefits (not SSDI) is taxable, which is a different rule that applies only to Social Security retirement benefits, not disability benefits.

If I move to a state that taxes SSDI, do I owe back taxes?

No. Your state tax obligation begins on the date you become a resident of the new state, not retroactively. If you moved on June 15, you owe tax on your SSDI starting June 15 of that year. You do not owe tax on SSDI you received before you moved, even if your previous state did not tax it.

Can I reduce my state tax bill by moving to a state that does not tax SSDI?

Yes, but only if you become a resident of that state. Residency is determined by where you live for most of the year and where you intend to stay. straightforward owning property or having a mailing address in another state does not make you a resident for tax purposes. Consult a tax professional or your state tax authority about residency rules if you are considering a move.

What if my state taxes SSDI but I have very little other income?

You may still owe tax, depending on your state's filing threshold and tax brackets. However, some states offer deductions, credits, or exemptions for SSDI recipients, especially those over age 65 or with low income. Contact your state tax authority to ask whether you may have access to for any relief.

Do I have to report SSDI on my state return if my state does not tax it?

No. In states that do not tax SSDI, you do not report it on your state return. You report only your other income. However, you must still file a return if your other income exceeds your state's filing threshold.