Does Disability Income Count on Your Federal Taxes?

Benefits are available to those with permanent and temporary disabilities. Disabled Americans may qualify for assistance from a number of sources, including the federal government, state agencies and the workplace. Answering the question of whether the federal government imposes taxes on disability income depends upon the specifics of the situation involved. The federal government requires that everyone file income tax returns and bases individual tax rates on a number of considerations. In the case of disability, the factors include the type of benefits involved and the recipient's income levels.

Though disabled individuals qualify for certain tax benefits under U.S. federal law, the Internal Revenue Service (IRS) requires disabled individuals to file tax forms. When disabled individuals file income tax returns, these individuals include all streams of revenue on the return. For instance, an individual may receive state benefits for a temporary disability for six months and receive income from work for the other six months of the year. The IRS imposes on tax rate on this individual based on total income earned, rather than imposing separate tax rates for disability income and work income.

The federal government provides a tax credit designed specifically for elderly or disabled American citizens and legal residents. This credit exempts low-income individuals aged 65 or older, those receiving taxable disability income, or individuals suffering from permanent or total disability from paying a certain amount of taxes. The IRS bases the availability of this tax credit on the amount of an individual's adjusted gross income (AGI), as calculated using IRS tax forms. To take advantage of the credit, maximum AGI amounts range from $12,500 to $25,000, depending on considerations such as filing status and dependents. Tax credits range from $3,750 to $7,500.

Ultimately, the answer to the question of whether disability income counts on your federal taxes is "yes." Even if you don't end up paying taxes on your disability benefits, you must include them on your tax return. If the IRS grants you a tax credit on account of your status as disabled, retired, or both, that credit applies to all income earned, not just disability income. State disability benefits, such as California's State Disability Insurance, prove subject to federal taxation as well. A few exceptions apply, notably to disability pensions received by military personnel, police officers and firefighters, which are tax-free but still must be declared on tax returns.

Writing on behalf of the Hepatitis C Support Project, author Jacques Chambers suggests that the complexities of taxation and disability in the United States may require the disabled to seek assistance. According to Chambers, employing the assistance of a tax consultant or expert helps the disabled pursue tax breaks to the full extent of the law. This process requires more extensive action than simply filing standard tax forms and proves somewhat difficult. Nonprofit groups such as the Hepatitis C Support Project help the disabled locate such assistance, while the IRS offers free tax preparation services to low-income individuals incapable of preparing their own returns.

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