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Tax deadline: can you claim a disability on taxes?

The IRS offers multiple deductions available for disabled Americans but there can also be situations where these benefits can be subject to taxation.

Update:
The IRS offers multiple deductions available for disabled Americans but there can also be situations where these benefits can be subject to taxation.

The Social Security Administration (SSA) oversees a number of programs designed to provide additional financial support for close to 70 million Americans. One aspect of benefits payments that the organisation manages are those relating to disability benefits. These are called Social Security disability payments (SSDI).

SSDI payments vary for each individual and are calculated in a similar fashion to retirement benefits. The SSA looks at your earnings during the years from the time you turn 22 up to the year before you become disabled. The criteria for being disabled in the eyes of the SSA are quite strict.

SSDI payments are only taxed if you are receiving enough to be over a threshold of $25,000. The vast majority of recipients do not receive that much support.

Furthermore, there are a number of disability tax benefits that can be applied for when you file your taxes.

Disability tax benefits

Below is a list of the various deductions and exclusions that can be applied for during the tax season, with links that take you to the appropriate IRS webpage with more information.

How does tax work with disability benefits?

Whether filing your taxes individually or with your spouse, the following income limits result in about half of your benefits being taxed:

  • Over $25,000 and less than $34,000 for an individual
  • A combined income over $32,000 if married and filing jointly

For higher income brackets, 85 percent of your benefits could be taxed, including:

  • Over $34,000 if single
  • Over $44,000 if married

‘85 percent being taxed’ does not mean that 85 percent of your benefits will be forfeited to tax, only that this amount of your money will be taxed like usual income for someone working.

The estimated average Social Security disability benefit for a disabled worker receiving SSDI was $1,358 per month in 2022. That figure is expected to go up to $1,483 in 2023. Over a year, this would equate to a benefit of nearly $16,300. If you are filing your taxes individually, there is little chance that your benefits are large enough to be taxed; 85% of recipients got less than $2,000 a month as of December 2021.

Are there other states that levy tax on SSDI benefits?

Most states don’t tax Social Security disability benefits. The following states, however, do tax disability benefits in some situations:

  • Connecticut
  • Colorado
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

While most of these states follow the tax brackets set at the federal level, some do not. Fortunately, Disability Secrets has a comprehensive breakdown on taxes that are levied at the state level.