If you’ve always received paychecks and are used to seeing state, federal and local taxes withheld from your payments, the first time you receive a Social Security Disability payment you may be in for a surprise.
The Social Security Administration does not automatically deduct taxes from your disability payments. Does this mean you don’t have to pay taxes on the disability benefits you receive? Not necessarily. Before you assume that your benefits come to you tax-free, there are a few things you need to understand about disability and income tax requirements.
Are disability benefits taxable income?
When you work for an employer, it is the employer’s responsibility to withhold taxes from your paychecks and send those income tax payments off to the appropriate government agencies. When you receive disability benefits, however, there are no taxes automatically withheld from your monthly benefit payment.
Due to this many people make the mistake of assuming that a lack of tax withholding means their disability benefits are not taxable, and some of these people find themselves in a financial fix at the end of the year.
Your benefits may indeed be taxable, but it depends on how much income your household receives during the year. If your total income is more than $25,000 or if you file a joint return and your income is more than $32,000, you are going to have to pay taxes on the Social Security Disability benefits you receive.
How much of my Social Security disability income is taxable?
So, what is the disability tax credit? It is a credit that a person may claim on their taxes if that person is certified as disabled by their doctor. That means that if you or a supporting family member has paid tax, you may be entitled to get a refund. Because the credit can be claimed retroactively for the past ten years, in some cases the refunds can be substantial.
The legal test to qualify for the disability credit is quite different than other disability tests (such as those required to qualify for CPP or Worker’s Comp). Many doctors aren’t even aware of the difference in the legal analysis. For example, there are instances where doctors have mistakenly told their patients that they don’t qualify for the disability tax credit because the patient can work. However, the ability to work has nothing to do with the disability tax credit.
There are nine categories under which a person can be certified as disabled for the disability tax credit. They are vision, hearing, speaking, walking, elimination, feeding, mental functions necessary for everyday life, dressing, and life-sustaining therapy. If your doctor determines that you are markedly disabled in any one of these areas, then that doctor can certify you as disabled for the disability tax grant or credit.
If you are not entirely markedly handicapped but still significantly disabled in more than one of the nine categories, then you will qualify for the disability tax credit. To be eligible for the disability credit, the disability must have existed for more than one year or must be expected to last for more than one year.
The certification and tax credit forms must be filled out by a qualified health practitioner. Certain health practitioners can only certify certain types of disabilities.
It is true that many seniors qualify for the disability tax credit but are not aware they are eligible. The old are often unable to walk any significant distance and this inability to walk markedly affects their life. The inability to walk could be due to any number of illnesses such as stroke, arthritis, osteoporosis, balance issues, COPD, etc. Also, older adults often suffer marked disabilities in mental functions (such as memory), hearing, vision, feeding, dressing, and elimination.
Do you get a tax refund if you are on disability?
All disabled taxpayers expect to get their refund quickly from the IRS. However, when trying to prepare tax returns on your own, you find yourself overwhelmed with the amount of tax information: conditions, deductions, exclusions, etc. Some disabled taxpayers may run the risk of miscalculating a lower refund or e-filing an inaccurate tax return when they’re preparing the return on their own!
What can you do better to get your refund faster?
Our advice and the quickest way to get your disability tax refund is to have it deposited directly into your bank account. Of course, you can always request that the IRS issue a paper check, which you will receive by mail and takes longer. To avoid delays, take some time to review your return with your tax preparer. The IRS reports that a common mistake is not providing the correct Social Security number!
More Info About Disability