SSDI Recipients Alert: Your Benefits Might Be Taxed by the State Starting This Week
SSDI Recipients Alert: As of mid-May 2025, Social Security Disability Insurance (SSDI) recipients are watching closely as several states continue to shift their tax policies. While no new state-level taxes have officially taken effect this week, a number of legislative changes are in progress that could affect how SSDI benefits are taxed. Whether you’re a retiree, a disability recipient, or a caregiver, understanding these changes is essential to managing your finances and staying compliant with both federal and state tax laws.
In this article, we’ll break down what SSDI recipients need to know about state taxation of benefits, outline which states are eliminating or phasing out taxes, and provide practical tips to help you navigate the evolving landscape.
SSDI Recipients Alert
| Topic | Details |
|---|---|
| States Phasing Out Taxation | West Virginia, Colorado, Michigan |
| States Still Taxing SSDI | Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah |
| Federal Tax Thresholds | Individual: $25,000/$34,000; Joint: $32,000/$44,000 (TurboTax) |
| Most Impacted | SSDI recipients with additional income or living in high-tax states |
| Official Resources | SSA.gov, IRS.gov, Kiplinger |
Navigating SSDI tax rules doesn’t have to be overwhelming. By understanding which states tax Social Security benefits, how federal income thresholds apply, and using the right tools and resources, you can confidently manage your benefits and avoid costly surprises. As 2025 unfolds, staying informed is your best defense.
What is SSDI and Why Taxes Matter
Social Security Disability Insurance (SSDI) provides monthly financial assistance to individuals who are unable to work due to a disability. While many assume these benefits are tax-free, the truth is more complex. Depending on your total income and state of residence, you might owe taxes on a portion of your benefits.
Understanding the taxability of SSDI is especially important in 2025, as states continue updating tax codes to either ease the burden or, in some cases, maintain or expand taxation on these benefits.
States Reducing or Eliminating SSDI Taxes
West Virginia
Starting in 2025, West Virginia is phasing out its state income tax on Social Security benefits. This year, 65% of Social Security income is exempt from state taxation. By 2026, the exemption will be 100%, making the state more favorable for retirees and disabled residents.
Colorado
Residents aged 55 to 64 can now deduct 100% of their Social Security benefits from state taxes, provided their adjusted gross income (AGI) is under $75,000 for individuals or $95,000 for joint filers. This major update, effective in 2025, aligns with efforts to attract and retain middle-income retirees.
Michigan
Michigan continues to phase out its retirement income tax, including SSDI and other Social Security benefits. The reform is part of a broader effort to provide relief for seniors and those on fixed incomes.
States Still Taxing SSDI in 2025
Nine states continue to impose taxes on Social Security benefits. The amount taxed often depends on total income, filing status, and deductions available.
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
These states either partially tax benefits or apply means-tested thresholds similar to the federal government’s (Nasdaq).
Federal Taxation of SSDI Benefits
At the federal level, SSDI is not always tax-free. The IRS uses a calculation based on combined income, which includes:
- Your adjusted gross income (AGI)
- Nontaxable interest
- Half of your SSDI benefits
If You File as an Individual:
- Income between $25,000 and $34,000: Up to 50% of your SSDI is taxable.
- Income above $34,000: Up to 85% of your SSDI is taxable.
If You File Jointly:
- Income between $32,000 and $44,000: Up to 50% taxable.
- Income above $44,000: Up to 85% taxable.
Tip: You can use the IRS Interactive Tax Assistant to determine your taxable benefits.
Living Abroad? Here’s What to Know
If you’re receiving SSDI but live outside the U.S. (e.g., Dehradun, Uttarakhand, India), state taxes do not apply. However, you may still owe federal taxes if your income exceeds the IRS thresholds.
Pro Tip:
Always consult with a tax professional familiar with international tax laws. U.S. citizens living abroad are still required to file annual tax returns and report global income.
Practical Advice for SSDI Recipients
1. Check Your State’s Tax Policy
Visit your state revenue department’s official website or Kiplinger’s tax maps.
2. Estimate Your Combined Income
Use tools like the SSA Benefits Planner or TurboTax calculators.
3. Consider Withholding
You can ask the SSA to withhold taxes from your SSDI check to avoid surprises come tax season.
4. Work With a Tax Advisor
Tax laws can be confusing, especially with multiple income sources. An enrolled agent or CPA can help you file accurately and minimize your tax liability.
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FAQs About SSDI Recipients Alert
Q1: Are SSDI benefits taxable in all states?
No. Only nine states currently tax Social Security benefits, and each uses different income thresholds and exemptions.
Q2: Do I have to pay federal taxes on SSDI?
Possibly. If your total income is above IRS-set thresholds, up to 85% of your SSDI may be taxable.
Q3: Can I avoid state taxes by moving?
Yes. Many retirees move to tax-friendly states like Florida, Texas, or Nevada to reduce their tax burden.
Q4: How do I know if my SSDI is being taxed correctly?
Check your Form SSA-1099, then use IRS tools or consult a tax expert.
