Disability Tax: Laws and General Information
Updated/Revised Date: 2022-04-06
Author: Disabled World | Contact: Disabled World (Disabled-World.com)
Additional References: Disability Taxes and Tax Breaks Publications
Synopsis: Information, questions, and answers regarding disability tax laws and rules for people with disabilities. 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. 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.
Main Document
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.
Picture depicts a person writing the underlined word TAX on white paper.
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's 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.
Subtopics and Associated Subjects
| Latest Disability Taxes and Tax Breaks Publications | |
|---|---|
 | Does U.S. Tax Code Discriminate Against Seniors? 58% of older taxpayers say income thresholds for taxation of social security benefits should be adjusted. Publish Date: 2023-03-14 - Updated: 2023-03-17 |
 | Americans Plan Frugal Use for Their 2023 Tax Refunds Americans likely are receiving smaller tax refunds than they have in recent years, and most people will not be going out to spend this money. Publish Date: 2023-03-10 |
| 50% of U.S. Households May Pay Social Security Benefits Tax This Year Nearly 50% of U.S. households receiving Social Security benefits may pay taxes this year on a portion of their benefits retired making disabled taxpayers uncertain about their tax liability this year. Publish Date: 2022-02-22 |
| U.S. Social Security Benefit Taxation Thresholds Have Never Been Adjusted Nearly 50% of retiree households report a portion of their Social Security benefits are now subject to taxation. Publish Date: 2019-12-03 |
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