Taxes and Social Security Disability

Professional Tax Advice For the Disabled

Couple doing taxes
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People with disabilities need a clear understanding of how their disability may change their tax liabilities, as well as what they can do to lower any tax obligation they may have. 

Because tax planning throughout the year can add up to significant tax savings, here are some steps to take so when the annual April income tax deadline arrives, you are well-prepared.

Taxes on Disability-Related Sources of Income

You likely are familiar with how the Internal Revenue Service (IRS) taxes work income or investment income, but people with disabilities also need to understand the taxation of disability-related sources of income.

Monthly Social Security Disability Insurance (SSDI)

Generally, the IRS can tax up to 50 percent of your Social Security disability benefits. To calculate this amount, add one-half of your SSDI benefits plus all of your other income sources. You will owe taxes on any amount above a base level. A worksheet to check taxability of SSDI benefits is available on the Allsup website.

Lump-Sum SSDI Benefits 

It can take more than two years to receive Social Security disability benefits, resulting in a lump-sum amount of back payments. Paying taxes on this amount in one year is a mistake and could be financially devastating.

The IRS allows you to spread out taxes on this lump-sum payment over previous tax years using the current-year tax return, with no need to file an amended return. However, the calculations are complex, so it’s a good idea to seek tax assistance. A list of free tax help resources for people with disabilities is available on Allsup’s website.

Taxation of Other Income Sources

Tax treatment of other income sources varies. For example, workers’ compensation benefits and compensatory damages for injuries generally are not considered taxable.

The taxability of long-term disability (LTD) insurance benefits depends on how the premiums were paid. If you paid the premiums with after-tax dollars, the benefits are not included in your taxable income.

If you paid long-term disability premiums with pre-tax dollars as part of a cafeteria plan, for example, or your employer paid your premiums, the benefits are taxable to you and must be included in your income.

Lower Your Bill with Tax Credits

There are a variety of tax credits that may benefit you depending on your situation. The IRS regularly updates the amounts of these credits for each tax filing year. Among these are:

  • Earned income tax credit
  • Credit for the disabled
  • Dependent care credit

Lower Your Taxes with Deductions

Deductions are another way the disabled can reduce their tax bill. Some to consider include:

  • Increased standard tax deduction. Blind or visually impaired taxpayers may be entitled to a higher standard tax deduction.
  • Medical deductions may apply. Deductible expenses include medical and dental costs, travel expenses for treatment, long-term care insurance, medical insurance premiums, and costs for certain equipment for those with visual, hearing and other physical disabilities.
  • Deduct the costs of seeking your Social Security disability benefits. To do so, you will need to itemize deductions on your tax return using Schedule A of Form 1040.

No one likes to pay taxes. For people with disabilities, you can improve your financial future by taking a closer look. With some advance planning, you can avoid paying more taxes than you need to and improve your potential for important tax benefits.


About the Author:

Paul Gada is a tax attorney and the personal financial planning director for Allsup (, a nationwide provider of Social Security Disability Insurance representation and Medicare plan selection services. As head of the Allsup Disability Life Planning Center, he focuses on Allsup’s efforts to help people with disabilities reclaim their lives and cope with their continuing financial and healthcare concerns.

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