Tax Disabled PersonsWe’re sorry we have to bring up that dreaded word taxes, but every year we all have to deal with federal income taxes. If you are employed, taxes are pretty simple. Your employer deducts taxes from each paycheck, sends you a W-2 at the end of the year showing how much has been withheld and you use that to file your taxes and pay in some more or get a refund. However, if you are disabled and get government benefits from the VA or Social Security, the rules are a bit different, but filing your taxes doesn’t have to be a nightmare. Here are some key take-aways you need to know.

Will I have to pay taxes on my disability payments?

If you are a disabled veteran, the answer is: “no”. This is what irs.gov says, “Disability benefits received from the VA should not be included in your gross income. Some of the payments which are considered disability benefits include:

  • Disability compensation and pension payments for disabilities paid either to Veterans or their families,
  • Grants for homes designed for wheelchair living,
  • Grants for motor vehicles for Veterans who lost their sight or the use of their limbs, or
  • Benefits under a dependent-care assistance program.”

Most service members who are wounded in battle are awarded Disability Severance Pay. According to the Department of Defense (DOD), Disability Severance Pay is for “the veteran [who] has a combat-related injury or illness as determined by his or her military service at separation that resulted directly from armed conflict; took place while the member was engaged in extra-hazardous service; took place under conditions simulating war, including training exercises such as maneuvers; or was caused by an instrumentality of war.” Typically, Disability Severance Pay is neither taxable nor subject to federal tax withholding.

You do not have to file any type of tax paperwork with your federal return if you receive any of these tax-free disability benefits. The IRS knows that disability benefits are free to veterans and applies the tax break automatically.

For Social Security disability recipients, the answer to “Will I have to pay taxes on my disability payments?” is: “it depends”. You may have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return.)

For Social Security Disability Insurance (SSDI) recipients, if you do not make more than $25,000 a year and file as an individual or your household income is less than $32,000 per year and you file jointly, you will not have to pay taxes on your Social Security disability benefits. If your income goes over those limits, a portion of your disability payments may be taxable. But you never have to pay tax on all of your disability benefits. Regardless of your total income, you will never have to pay taxes on more than 85% of your Social Security disability benefits. Here’s how that breaks down:

  • If you earn more than $25,000 but less than $34,000 and file as an individual or more than $32,000 but less than $44,000 and file jointly, then fifty percent of your disability income will be taxable.
  • If you earn more than $34,000 if filing as an individual or more than $44,000 if filing jointly, then you will need to pay taxes on eighty-five percent of your disability income.

Before the end of January you will receive a benefit statement from Social Security that shows the total amount of Social Security benefits you received in the previous year. It’s also referred to as an SSA-1099. Noncitizens who live outside of the United States receive the SSA-1042S instead of the SSA-1099. You should report the amount of Social Security income you received to the IRS on your federal tax return. (If you currently live in the United States and you misplaced or didn't receive a Form SSA-1099 or SSA-1042S for the previous tax year, you can get an instant replacement form by using your online my Social Security account.)

Supplemental Security Income (SSI) benefits are not taxed. SSI recipients do not receive a Social Security benefit statement.

Are disability recipients eligible for special tax credits?

Absolutely.  Special tax credits can mean extra cash to help you with expenses.

Child Tax Credit. The CTC is a tax benefit that helps families who are raising children. This CTC benefit amount was increased for the 2021 tax year. Even though congressional efforts to extend the increased benefit fell short, for the 2022 tax year you can still get up to $2,000 per qualifying child who are under the age of 17 as of December 31, 2022. If you meet the qualifying rules of the CTC, you can claim this credit if you get VA disability, SSDI or SSI and even if you don’t normally file a tax return.

Earned Income Tax Credit. The EITC provides low-to-moderate-income workers and families a tax break. If you qualify, you can use the credit to reduce the taxes you owe and maybe increase your refund. The EITC amount you might get generally depends on your earned income and the number of your qualifying children. Like the CTC, if you meet the qualifying rules, receiving VA disability, SSDI, or SSI benefits doesn’t affect your eligibility for the EITC. To claim the EITC, you must file a federal tax return. To learn more about the EITC, including basic qualifications, navigate to the IRS’ Earned Income Tax Credit webpage.

To file a simple tax return to claim your Child Tax Credit and EITC in as little as 15 minutes visit ChildTaxCredit.gov

How can you get free help in preparing your taxes?

For individuals with disabilities the Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $60,000 or less. (Those who are elderly or are limited English speaking taxpayers who need assistance in preparing their own tax returns are also eligible for VITA services.) IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals. Assistance is provided at community and neighborhood centers, libraries, schools, shopping malls, and other convenient locations.

Tax season doesn’t have to be a stressful time of year. And for many people, it’s an opportunity to claim additional money.


Please note that this article gives general income tax guidance, but should not be used as tax advice in individual cases. You should always seek guidance from a competent tax professional.

 

 

Sean D. Cuddigan
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SSA and VA Disability Attorney in Omaha, Nebraska
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