Disability and Taxes: Credits, Deductions, and Rules
Author: Disabled World (DW)
Updated/Revised Date: 27 Jul 2026
Table of Contents:
Synopsis - Definition - About This Section - FAQs - Publications - Subtopics
Synopsis
Learn how disability and taxes work, including SSDI and SSI rules, tax-free income eligibility, deductions, and credits for people with disabilities.
At a Glance
- 1 - Social Security Disability benefits are never taxed on your state or city returns.
- 2 - The VITA program offers free tax return preparation for people with disabilities and others who qualify.
- 3 - Claiming the disability credit requires a physician's statement certifying you are permanently and totally disabled.
- 4 - Disability retirement benefits count as earned income until you reach the minimum retirement age, after which they are treated as a pension.
Topic Definition
- Disability and Taxes
Disability and taxes refers to the set of federal tax rules, credits, deductions, and income classifications that determine how benefits and expenses tied to a disability are treated by the Internal Revenue Service. It covers whether payments such as Social Security Disability Insurance, Supplemental Security Income, and military disability pensions are counted as taxable income, along with the conditions under which some disability income can be received tax-free. It also addresses the deductions available for costs incurred while pursuing a disability claim, how disability retirement pay is categorized before and after minimum retirement age, and which taxpayers may qualify for support programs and credits. In practice, the outcome depends heavily on the type of benefit received and any additional income a person or household earns during the tax year.
Overview
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.
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 the IRS.
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.
Frequently Asked Questions
Are Social Security Disability Insurance (SSDI) benefits taxable?
SSDI benefits can be taxable depending on your total income for the year. If SSDI is your only income, your benefits generally are not taxable and you may not need to file a return, but if you have additional income, part of your benefits may become taxable. Review IRS Publication 915 and consult a tax adviser to confirm your situation.
How much of my Social Security disability can be taxed at the federal level?
Depending on your combined income, up to 50 percent or up to 85 percent of your Social Security disability benefits may be subject to federal income tax. The exact amount is based on thresholds tied to your filing status and total income, so taxpayers with higher additional earnings are more likely to owe tax on a larger share of their benefits.
Do I have to report Supplemental Security Income (SSI) on my tax return?
No, SSI is typically not taxable and is not counted as income on your federal return. Because SSI is a needs-based benefit rather than an insurance benefit funded by payroll taxes, it is treated differently from SSDI and generally does not need to be reported as taxable income.
What is the Credit for the Elderly or the Disabled?
It is a federal tax credit available to certain individuals who are permanently and totally disabled or who are age 65 and older, and who meet specific income limits. To claim it based on disability, you must have a physician's statement certifying your condition, and the credit amount is reduced as your income and nontaxable benefits rise.
Can I deduct medical expenses related to my disability?
Yes, qualified medical expenses may be deductible if you itemize and your total medical costs exceed the IRS threshold based on your adjusted gross income. Deductible costs can include payments to doctors and hospitals, certain equipment, and transportation for medical care, so keeping detailed records throughout the year is important.
What is an ABLE account and how does it affect taxes?
An ABLE account is a tax-advantaged savings account for eligible individuals with disabilities that lets funds grow tax-free when used for qualified disability expenses. Contributions are not deductible on your federal return, but the earnings and qualified withdrawals are generally not taxed, and balances usually do not affect eligibility for many needs-based benefits up to set limits.
Where can I get free help filing my taxes if I have a disability?
You can use IRS-supported programs such as Volunteer Income Tax Assistance, which offers free preparation for people with disabilities and others who qualify, as well as MyFreeTaxes for eligible households. These programs use trained or certified volunteers and support electronic filing, making them a low-cost option for qualifying taxpayers.
Curated and edited by Ian C. Langtree, Founder & Editor-in-Chief, Disabled World. This section is maintained by the Disabled World editorial team.
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