Do You Have to File Taxes When on Disability?

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 06, 2024

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Do You Have to File Taxes When on Disability?

When you're on disability, the requirement to file taxes depends on the nature and amount of your income. If you receive Social Security Disability Insurance (SSDI) benefits, they might be taxable if you have additional substantial income.

Specifically, if half of your SSDI benefits plus your other income is more than $25,000 for individuals or $32,000 for couples, some of your benefits may be taxable. On the other hand, Supplemental Security Income (SSI) is not taxable.

However, if you receive disability payments from other sources, such as an employer-provided insurance plan or workers' compensation, these could be partially or fully taxable.

It's essential to consult tax guidelines or a professional to understand your specific situation and determine if, and how much, of your disability income is subject to taxation.

Understanding Disability Income Sources

Disability benefits are essential for many individuals who, due to various circumstances, cannot work. But just as crucial is understanding the tax implications associated with these benefits.

Social Security Disability Insurance (SSDI)

SSDI benefits are provided to individuals who have paid into the Social Security system and are no longer able to work.

The taxation of SSDI largely depends on your total combined income, which includes half of your SSDI payments and all other income sources. If this combined income surpasses certain thresholds, portions of the SSDI may be taxable.

Supplemental Security Income (SSI)

SSI is a need-based program aimed at helping aged, blind, and disabled people who have little or no income. One crucial aspect of SSI benefits is that they are not taxable. The IRS does not consider these payments as taxable income, offering a reprieve for recipients.

Private Disability Insurance

There's a significant difference between employer-provided disability policies and individual policies. If you've paid the premiums on an individual policy using after-tax dollars, any benefits you receive are generally not taxable.

Conversely, if your employer pays for the policy or if you paid the premiums using pre-tax dollars, then the benefits might be fully or partially taxable.

Veterans Disability Compensation

This compensation is a monthly tax-free payment to Veterans who got a disease or sustained an injury while serving in the Armed Forces. These payments are entirely exempt from federal taxation, ensuring that the heroes of our nation get the maximum benefit possible.

Understanding Disability Income Sources

Factors Determining Taxation on Disability Benefits

Combined Income

A pivotal factor in determining tax implications is the concept of combined income. It's the sum of adjusted gross income, non-taxable interest, and half of the Social Security benefits.

If the total surpasses the IRS-set threshold, which varies based on filing status, then part of the SSDI benefits becomes taxable.

Filing Status

Your tax situation can significantly differ depending on your filing status. For instance, if you're married but filing separately and live with your spouse at any point during the year, your benefits might become taxable, regardless of your combined income.

Dependent Benefits

Another nuance to consider is when dependents, like children, receive benefits based on your record. These benefits can increase the family's combined income, which might make a portion of all the family's benefits taxable.

State Residency

While federal guidelines on SSDI taxation are uniform, state laws vary. Some states tax SSDI benefits, while others do not. It's vital to familiarize yourself with your specific state's rules to ensure compliance.

Factors Determining Taxation on Disability Benefits

Tax Deductions and Credits for Individuals on Disability

Medical Expense Deductions

Taxpayers on disability can deduct medical expenses that exceed a certain percentage of their adjusted gross income. This can include doctor visits, medications, and even some adaptive equipment or modifications to one's home.

Impairment-Related Work Expenses

If a disabled person is employed, they can deduct expenses related to their disability that are necessary for work. This can range from special equipment to certain transportation costs.

Credit for the Elderly or the Disabled

Those on disability may qualify for this tax credit, which is specifically designed to provide financial relief to the elderly or the permanently and totally disabled. The exact amount of credit varies based on filing status and income.

Standard Deduction

Taxpayers who are blind or aged 65 and older might be eligible for a higher standard deduction. This can significantly reduce taxable income, offering tangible relief.

Tax Deductions and Credits for Individuals on Disability

Tax Filing Process for Individuals on Disability

Required Documentation

The SSA will provide an SSA-1099 form that outlines the total disability benefits received during the year. This form is essential when preparing tax returns, providing clarity on what amounts might be taxable.

Selecting the Correct Tax Form

Choosing the right tax form is crucial. Most people on disability will use the standard 1040 form, but there are variations (like the 1040A) based on specific situations and the deductions or credits claimed.

Seeking Assistance

It's never a bad idea to seek assistance, especially given the intricacies of disability-related tax rules. Some agencies offer free tax preparation services. However, for complex situations, consulting a tax professional might be the best route.

Potential Consequences of Not Filing Taxes When Required

Penalties and Interest

Ignoring tax obligations can lead to penalties and interest accruing on unpaid taxes. These amounts can add up, creating a substantial financial burden over time.

Loss of Potential Refunds

By not filing, individuals might miss out on potential refunds. Overpayment of taxes, especially when tax credits or deductions are overlooked, can result in lost money if one doesn't file a timely return.

Legal Repercussions

The IRS takes tax evasion seriously. Consistent failure to file or underreporting of taxable disability benefits can lead to audits, tax liens, or even legal action.


Navigating tax obligations while on disability is essential to ensure compliance and optimize financial well-being.

Disability income sources, such as SSDI and SSI, have distinct tax implications, with SSDI potentially being taxable depending on one's combined income and SSI being non-taxable.

Private disability insurance payments may vary in taxability based on how premiums were paid. Notably, Veteran's Disability Compensation remains tax-free.

Key determinants of tax implications include combined income, filing status, dependent benefits, and state residency.

Beneficiaries should be proactive, leveraging available tax deductions and credits, such as medical expense deductions and credits for the elderly or disabled.

Moreover, the SSA-1099 form provides clarity on received benefits, aiding in accurate tax filing. Given the complexity of disability-related tax rules, seeking professional assistance is advisable.

Failing to comply can result in penalties, lost refunds, or legal repercussions, emphasizing the importance of understanding and fulfilling one's tax responsibilities.

Do You Have to File Taxes When on Disability? FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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