Whether you claim your disability on your taxes depends on the type of disability income you receive and specific IRS rules. Generally, Supplemental Security Income (SSI) and workers' compensation are not taxable, while Social Security Disability Insurance (SSDI) may be.
Disability benefits fall into three main categories:
For example, if you're single and receive $20,000 in SSDI and $10,000 in wages, none of your SSDI is taxable because your combined income is below the threshold.
You may qualify for tax credits or deductions related to disability, such as:
The IRS states that in 2023, taxpayers deducted over $100 billion in medical expenses. Many of these were for disability-related treatments and equipment.
Many people assume all disability benefits are tax-free. However, SSDI is taxable under certain conditions. Another misconception is that only elderly individuals qualify for disability-related tax credits. Permanently disabled individuals of any age may qualify for the Credit for the Elderly or the Permanently and Totally Disabled.
Disability tax rules are complex. If you're unsure whether to claim your disability on your taxes, consult a tax professional or use IRS resources like Publication 501 (see here). I once helped a client save over $2,000 by correctly identifying their disability-related deductions.