I actually know very little on this topic, so this is not a very good article.
However, I know enough to know that no one else on the internet has collected a complete list of all the tax regs that apply to people with disabilities.
So, that leaves it to me, girl-who-knows-very-little, to try to do it.
Here’s what I’ve managed to find so far. If you have any corrections, additions, or more information, please post a comment below.
- Most people on Social Security do not file taxes. If you have other income or your spouse works then you may need to file taxes. SSI is never taxed. SSDI may be taxed under certain circumstances. Here are some basic tax rules for SSDI.
- If you owe money from the past, you may be able to amend or refile past tax returns to change the amount you owe. Please see below to see if any of the rules below would apply to your past taxes.
- If you own a house, most areas have special programs that will allow you to pay little or no property taxes if you have a disability. Check with your local government tax assessors office.
- Disability Exception: If you took an early withdrawal from your pension plan, you also may be eligible for a disability tax exception. There are two types of exceptions you may wish to look into: 1) exception for people who are totally and permanently disabled and 2) exception for people with high medical expenses. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions
- If you are planning to take an early withdrawal from your pension plan, you may also be eligible for a hardship withdrawal to avoid penalty fees from the company that manages your pension plan. Check your pension plan policy on hardship withdrawals. This is different than the IRS tax exception, you should do both things.
- If you received a large backpay check when your disability was approved, you do not have to declare it all in one year. You can amend your past tax returns to include the money for the years that were covered (for example: $20,000 per year on every tax return for four years, instead of $80,000 all at once). https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/social-security-income/back-payments/back-payments
- If you got a disability discharge on student loans, see: How to Escape Tax Problems from Student Loan Discharges
- If you paid for an attendant or caregiver, you may be eligible to write this expense off of your taxes.
- If you live with your adult children or parents and they paid most of your expenses, they may be able to declare you as a dependent on their taxes and lower their tax bills. (Warning: This is safe on SSDI. If you are on SSI, proceed with caution. Receiving free food or housing can cause your disability check to be lowered.)
- If you are disabled and low income, you may be eligible for a IRS Credit for the Elderly or Disabled. I believe this only applies to certain types of income. https://www.irs.gov/pub/irs-pdf/p524.pdf
- This accountant has written an article about using hardship status to reduce or eliminate your tax bill. I do not know anything about this. If anyone has tried this or knows more, please post below. http://howardlevyirslawyer.com/2009/01/09/is-there-such-a-thing-as-a-hardship-status-with-the-irs/
- If you didn’t use the above tax breaks and now you are having some regrets, I believe there is a way to amend past returns. Consulting with a tax accountant seems like a good idea to me.
Please post below if you have ideas to improve this page. If anyone has tried any of the above, please let us know how it went.
Great Story from Linda Love
“The IRS was taking a percentage of money out of my SSDI checks because of taxes I owed. Well, I just sent them a letter stating that it was causing me to be homeless. They didn’t answer, so in a couple weeks, I sent a second letter. After my 2nd letter they wrote back saying that they was sorry about inconveniencing me and they stopped taking my money. They said to let them know if my monetary situation changed to let them know. The debt expires after 10 yrs.”