Disability Benefits and Federal Taxes: An Introduction

Income tax filing season is now fully underway. In keeping with the annual ritual, taxpayers are looking for ways to take full advantage of favorable tax provisions and minimize tax payments wherever possible.

People with disabilities in Michigan and across the country are among these taxpayers. So are the parents of children with disabilities. And there are indeed several tax planning considerations regarding disabling conditions that it makes sense to be aware of before you file your taxes.

Let’s start with the standard deduction. It’s worth noting that it may be possible for a taxpayer who is legally blind to take a higher standard deduction.

What about taxable income? Or, to put it another way, are disability benefit payments considered income for federal tax purposes?

The answer may depend on which particular type of benefit is involved. Disability benefits from the Veterans’ Administration, however, are typically excluded from the income calculation when determining gross income. So is income from the Supplemental Security Income (SSI) program.

In the case of SSI, the exclusion may seem counterintuitive. After all, the very name of the program is Supplemental Security Income. But for tax purposes, these benefits are generally excluded from gross income.

What if you have a physical or mental disability that affects you ability to work, but you are still working in job that accommodates your condition? In cases like this, taxpayers are often eligible for tax breaks on their impairment-related work expenses.

This is by no means an exclusive list of the tax benefits that may be available regarding disability. But it is a place to start. And April 15, the tax filing deadline, is not that far away.

Source: “IRS says Tax Benefits available for those with Disabilities,” Clarksville Online, 3-1-13

Our firm handles situations similar to those discussed in this post in Southeast Michigan. To learn more about our practice, please visit our main Social Security disability page.