There is a good guide for this on https://wiki.archlinux.org/index.php/SDDM#Installation
User icon (avatar) SDDM reads the user icon (a.k.a. "avatar") as a PNG
image from either ~/.face.icon for each user, or the common location
for all users specified by FacesDir in an SDDM configuration file. The
configuration setting can be placed in either /etc/sddm.conf directly,
or, better, a file under /etc/sddm.conf.d/ such as
/etc/sddm.conf.d/avatar.conf.
To use the FacesDir location option, place a PNG image for each user
named username.face.icon at the location specified by the FacesDir key
in the configuration file. The default location for FacesDir is
/usr/share/sddm/faces/. You can change the default FacesDir location
to suit your needs. Here is an example:
/etc/sddm.conf.d/avatar.conf
[Theme]
FacesDir=/var/lib/AccountsService/icons/
I Just kept the pic I wanted in /usr/share/sddm/faces/ with the name <user-name>.face.icon As per the wiki it seems only .png files are supported.

