Disability and Taxes: Laws, Rules, Information

Author: Disabled World (DW)
Updated/Revised Date: 2025/03/13
Category Topic: Tax Information (Publications Database)

Page Content: Synopsis - Introduction - Main - Subtopics

Synopsis: Disability tax laws, rules, credits, and information for people with disabilities. Learn about tax-free income eligibility, deductions, and more. Taxed disability benefits do not include benefits received through the Social Security Administration as Supplement Security Income (SSI). SSI is provided on an as-needed basis to disabled indigents. However, Social Security Disability Insurance (SSDI) benefits are provided to individuals who have paid enough Social Security taxes to qualify for the SSDI program.

Introduction

The U.S. IRS defines a permanent disability as one that prevents you from engaging in consistent employment. It does not include activities that relate to ordinary personal and household maintenance. If you can still take care of your house and daily life, that doesn't mean that you are capable of gainful employment, and the IRS understands that. However, the level of household activity is a factor the IRS may consider in determining whether you have a permanent and total disability. Claiming the credit also requires you to obtain a statement from your physician certifying that you are permanently and totally disabled. Further information is available on the U.S. IRS Website.

Focus

Recent new U.S. tax laws allow persons with disabilities to receive more favorable federal tax treatment. Individuals who receive Social Security disability insurance benefits may receive tax-free income if they meet certain eligibility criteria.

Taxed disability benefits do not include benefits received through the Social Security Administration as Supplement Security Income (SSI). SSI is provided on an as-needed basis to disabled indigents. However, Social Security Disability Insurance (SSDI) benefits are provided to individuals who have paid enough Social Security taxes to qualify for the SSDI program.

SSI is provided to individuals who may not have worked and paid into the SSDI insurance pool. SSI is typically not taxable and not included as income. If the only income you received during the tax year was your Social Security disability benefit, your benefit generally is not taxable, and you probably do not have to file a tax return. If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. You should review IRS publication 915 and consult your personal tax adviser.

Many expenses incurred during your Social Security Disability claim are also tax-deductible. Examples Include:

• Medical costs incurred for examinations and reports.
• Fees paid to doctors and hospitals.
• Transportation and special assistance costs for travel to/from claim-related destinations.

Earned Income Tax Credit (EITC or EIC)

The U.S. IRS considers disability retirement benefits as earned income until you reach the minimum retirement age. The minimum retirement age is the earliest age you could have received a pension or annuity if you did not have a disability. After you reach the minimum retirement age, the IRS considers the payments your pension and not earned income.

Benefits such as Social Security Disability Insurance, SSI, or military disability pensions are not considered earned income and cannot be used to claim the Earned Income Tax Credit (EITC). You may qualify for the credit only if you, or your spouse if filing a joint return, have other earned income. More information at: www.IRS.gov

Disability During Unemployment Benefits are Subject to U.S. Federal Income Tax

You may voluntarily request to have 10% of your weekly benefits withheld. If you are interested in this service, refer to publication BC-103 (Taxation of Unemployment Benefits & Voluntary Tax Withholding) for additional information.

Notes

• Social Security Disability benefits are never taxed on your state or city returns.
• MyFreeTaxes provides free federal and state tax preparation and filing assistance for qualified individuals or families with a combined income of $62,000 or less.
• The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $54,000 or less, persons with disabilities, and limited English-speaking taxpayers who need assistance in preparing their tax returns. IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals.