Most states do not tax SSDI, but a handful do—and the rules differ sharply from how they treat regular Social Security retirement benefits

Thirty-seven states and the District of Columbia do not tax SSDI at all. However, Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont do tax SSDI as income. The tax treatment in these states is not uniform: some tax it the same way they tax wages, others explore special rules, and a few have phased-in exemptions based on your total income or age.

The federal government does not tax SSDI for most people. However, if you have other income—wages, self-employment earnings, pensions, or investment returns—the IRS may tax a portion of your SSDI under the "combined income" formula. State taxes work independently of this federal rule and depend entirely on where you live and file taxes.

If you live in a state that taxes SSDI, you will report it on your state tax return just as you would report it on your federal return. The amount you owe depends on your state's tax rate, your total income, and whether your state offers any exemptions or deductions for disability income.

Key Takeaways

  • Thirty-seven states do not tax SSDI under any circumstances; eleven states and D.C. do tax it, though the rules and rates vary by state.
  • Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont currently tax SSDI as ordinary income.
  • Some states that tax SSDI offer exemptions or deductions if you are over a certain age or if your total income falls below a threshold.
  • State tax treatment of SSDI is separate from federal tax treatment; you may owe federal tax on SSDI, state tax, both, or neither depending on your income and residence.

States That Tax SSDI and How Much

The eleven states that tax SSDI are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont. Each state has its own income tax rate and rules for how SSDI is treated.

Colorado taxes SSDI as ordinary income at rates ranging from 4.4% to 8.75%, depending on your total income. Connecticut taxes SSDI at rates from 3% to 6.99%. Kansas taxes it at a flat 5.7%. Minnesota's rate ranges from 5.35% to 9.85%. Missouri taxes SSDI at rates from 1.5% to 5.3%. Montana's rate is 1% to 6.9%. Nebraska taxes it at 2.84% to 6.84%. New Mexico's rate is 1.7% to 5.9%. Rhode Island taxes SSDI at 3.75% to 5.99%. Utah taxes it at a flat 4.95%. Vermont's rate ranges from 3.35% to 8.75%.

These rates explore to your SSDI income just as they would to wages or other income. However, some of these states offer partial exemptions or deductions that can reduce the amount of SSDI subject to tax. For example, Vermont allows a deduction for disability income, and some states exempt SSDI if your total income is below a certain level. You should check your state's tax agency website or speak with a tax professional to learn whether you may have access to for any exemption or deduction in your state.

Exemptions and Deductions for SSDI in Taxing States

Several states that tax SSDI offer exemptions or deductions that can lower your tax bill. These are not automatic—you must report them on your state tax return, and may be able to access rules vary.

Vermont allows a deduction for disability income if you are under the state's full retirement age. Connecticut offers a deduction for Social Security and SSDI income if your total income is below a threshold that changes each year. Kansas exempts SSDI if your total income is below a certain level. Minnesota allows a deduction for Social Security and SSDI if you meet age or income requirements. New Mexico exempts a portion of SSDI for taxpayers over age 65. Rhode Island allows a deduction for Social Security and SSDI income if your total income falls below a threshold.

The income thresholds and deduction amounts change annually and vary based on your filing status (single, married filing jointly, etc.). Because these rules are complex and change year to year, the best approach is to contact your state's tax agency or a tax professional before filing. Many state tax agencies publish worksheets or guides specifically for Social Security and SSDI income.

How SSDI Interacts with Federal Income Tax

Federal tax treatment of SSDI is separate from state tax treatment. The IRS does not tax SSDI for most beneficiaries, but if you have other income, a portion of your SSDI may become taxable under the "combined income" test.

Combined income is calculated as your adjusted gross income plus nontaxable interest plus half of your SSDI. If your combined income exceeds $25,000 (single filers) or $32,000 (married filing jointly), up to 50% of the excess may be taxable. If your combined income exceeds $34,000 (single) or $44,000 (married), up to 85% of your SSDI may be taxable. These thresholds have not changed since 1984 and do not adjust for inflation.

If you live in a state that taxes SSDI, you may owe both federal and state tax on the same income. For example, if you live in Connecticut and your combined income triggers federal taxation of SSDI, Connecticut will also tax that SSDI under its own rules. You report federal taxable SSDI on Form 1040 and state taxable SSDI on your state tax return.

Reporting SSDI on Your State Tax Return

If you live in a state that taxes SSDI, you will receive a Form SSA-1099 from Social Security each January showing the total SSDI you received in the prior year. You use this form to report SSDI on both your federal and state tax returns.

On your state return, SSDI is typically reported on the line for "Social Security and other retirement income" or a similar line specific to your state. If your state offers an exemption or deduction for SSDI, you will claim it on a separate worksheet or schedule attached to your return. Many states allow you to file electronically, which can reduce errors and speed up processing.

If you do not file a state tax return because your income is below the filing threshold, you generally do not owe state tax on SSDI, even in states that tax it. However, if you have other income that pushes you above the filing threshold, you must file and report all income, including SSDI. State filing thresholds vary and are often lower than federal thresholds, so it is worth checking your state's rules.

What Happens If You Move to a Different State

If you move from a state that does not tax SSDI to one that does, or vice versa, your tax situation changes when ready. You are subject to the tax laws of the state where you are a resident on December 31 of the tax year. Residency is generally determined by where you live for the majority of the year or where you maintain a permanent home.

If you move mid-year, you may owe tax to both your old state and your new state for the portion of the year you lived in each. Some states offer credits to prevent double taxation, but you must claim them on your return. If you are considering a move and SSDI taxation is a concern, it is worth consulting a tax professional in your new state before you relocate.

Retirement or disability income is sometimes treated differently under state tax law than other income. Some states that tax SSDI may offer credits or exemptions for residents over a certain age or with certain disabilities. These rules can be complex and change frequently, so it is important to verify the current rules in your state each tax year.

How to Find Out Your State's SSDI Tax Rules

Your state's tax agency website is the authoritative source for SSDI tax rules. Most state tax agencies publish guides or fact sheets specifically about Social Security and SSDI taxation. You can find your state tax agency by searching "[your state] department of revenue" or "[your state] tax commission."

If you are unsure whether you owe state tax on SSDI or whether you may have access to for an exemption, you can contact your state tax agency directly. Many offer phone support, email support, or online chat. Some states also offer free tax preparation services through the Volunteer Income Tax information (VITA) program, which is run by the IRS and available in most communities. VITA sites can help you understand your state's rules and prepare your return correctly.

A tax professional or certified public accountant (CPA) can also review your situation and advise you on your state tax obligations. This is especially useful if you have complex income (wages, self-employment, pensions, investments) in addition to SSDI, or if you live in a state with exemptions or deductions that require careful calculation.

Frequently Asked Questions

Does the federal government tax SSDI?

The IRS does not tax SSDI for most beneficiaries. However, if your combined income (adjusted gross income plus nontaxable interest plus half your SSDI) exceeds $25,000 (single) or $32,000 (married filing jointly), up to 50% of your SSDI may be taxable. If combined income exceeds $34,000 (single) or $44,000 (married), up to 85% may be taxable.

If I live in a state that does not tax SSDI, do I still owe federal tax on it?

State and federal tax are separate. You may owe federal tax on SSDI based on the combined income test even if your state does not tax it. Conversely, you may owe state tax on SSDI in a taxing state even if you do not owe federal tax. Check both your federal and state tax obligations.

Can I reduce my state tax bill on SSDI by moving to a non-taxing state?

Yes, but only if you establish residency in the new state. You are subject to tax in the state where you live on December 31 of the tax year. If you move mid-year, you may owe tax to both states for the portion of the year you lived in each. Consult a tax professional about your specific situation.

What if I receive both SSDI and regular Social Security retirement benefits?

Both are reported on Form SSA-1099 and both are subject to the same federal combined income test. State tax rules typically treat SSDI and retirement benefits the same way, though some states offer different exemptions for each. Check your state's rules to see whether exemptions explore to both types of benefits.

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

Only if your SSDI income exceeds your state's filing threshold. State filing thresholds vary and are often lower than federal thresholds. Even if you do not owe tax, filing may be worth it if you are due a refund or if you may have access to for a tax credit. Check your state's filing requirements.