How to Get Tax Breaks for Disabilities

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Artwork: Elizabeth D’Angelo

This page is a work-in-progress. Please comment below with your tax stories, input, ideas and discoveries.

Car and Property Taxes

💠 Most areas have special programs that will allow you to pay little or no property taxes if you have a disability. Learn more about Property Tax Relief Programs

💠 In some areas, property tax assessment office will also offer car tax relief for the elderly or disabled.

💠 If you missed your chance to apply, it may not be too late. In some states, property tax exemptions can be processed retroactively, for the past 2-3 years.

Taxes on Pension Plan Withdrawals

💠 If you took an early withdrawal from your pension plan, you also may be eligible for a disability tax exceptions. 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.

💠 Bonus: If you are planning to take an early withdrawal from your pension plan, you may also 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.

💠 Hardship withdrawals are separate from than IRS tax exceptions. You can do both things to avoid both penalties and taxes.

Medical Expenses

💠 You may be able to deduct medical expenses on your taxes.

💠 Many many things can count as medical expenses! In certain situations costs of vitamins, supplements, meals, transportation, and many other things you might not expect. Learn more in this IRS booklet on Medical expenses.

💠 Also check out: How to Document Medical Expenses

Student Loan Disability Discharge

💠 If you got a disability discharge on student loans, see: How to Escape Tax Problems from Student Loan Discharges

Family 

💠 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.) Free rent may also cause your food stamps to be lowered.

Taxes on Social Security Checks

💠 SSI is never taxed.

💠 SSDI is sometimes taxed, but only if your countable income is above a certain amount. You do not want to go over that amount! Important, Social Security doesn’t count all your income, they only count something called “provisional income.” This includes 50% of your Social Security check, plus your other income.

💠 SSDI – quick fact. If your only income is SSDI, and you are not married, you will not owe any taxes.

💠 If you are living separately from your spouse for the entire year, you may wish to file separately, so your Social Security won’t be taxed.

💠 If you are living together for any part of the year, you probably don’t want to file separately, because all your Social Security will become taxable.

💠 Here are some basic tax rules for SSDI.

Backpay

💠 If you received a large Social Security backpay check when your disability was approved, you do not have to declare it all in one year. You can fill out your tax returns to divide the money across the years that were covered (for example: $20,000 per year for four years, instead of $80,000 all at once). IRS Rules on Backpay.

More Tax Tips

💠 If you are disabled and low income, you may be eligible for a IRS Credit for the Elderly or Disabled. 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. We 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/

The Past

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 above to see if any of the rules below would apply to your past taxes.

Join In

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.

Success Story

“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.” – Linda Love

7 thoughts on “How to Get Tax Breaks for Disabilities”

  1. Wow, what an amazing site you have, thank you, can’t imagine the work and hours you’ve put into this! Question- I recently was awarded SSDI, 1st payment will be July 11th 2018 then will receive monthly on the 2nd Wed of every month. I’m in the process of receiving a “Employee cash account” lump sum amount of $43,000 (-20% Fed and 10% of Fed to state taxes) from ex-employer, will this alter my SSDI?, do I need to declare this money? who do I report it to? Thank you again for this amazing site!!!!!!

    Like

    1. Hi Kimberly,

      Thank you so much for your kind comments.

      I’m sorry to say I have no clue the answer to your questions.

      I hope you may be able to consult with an account about this.

      Congrats on your approval. ❤

      Like

  2. Many many thanks for posting great information, you are a tremendous help!

    I owe roughly $4,000 in back taxes, will this amount be taken fully from my back pay or portions deduced from my monthly check until paid in full?

    Also, will I have to pay taxes for the amount I received from SSDI lump sum backpay ?

    Thank You!

    Like

  3. Thank you so much for your site. It contains so much helpful information and I love the sense of humor you display. After nearly 3 years, I was just approved last week. My attorney’s office has basically raised their hands and said, “Social Security will contact you within 30 days.” I am left with so many questions. I obviously have never been through this and they are no help. This site has answered many of my questions, and for that, I sincerely thank you.

    Like

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