What To Know About Disability & Earned Income Credit? - Tax Professionals Member Article By KLSM CPA Firm PLLC
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What To Know About Disability & Earned Income Credit?

What To Know About Disability & Earned Income Credit?

As taxes are concerned, individual taxpayers, service providers, and organizations are privileged to know about the Earned Income Tax Credit (EITC) and disability. The EITC has a significant role to play in the lives of many disabled taxpayers. In 2018, more than 25 million taxpayers were offered more than $63 billion as tax benefits. Plus, the administration is a refundable credit, meaning Earned Income Tax Credit can refund any taxes owed to taxpayers even after many years. They also accumulate refundable tax to a large amount for qualified tax individuals. 

Taxpayers earning less than $55,000 in 2018 are qualified for EITC. A family with qualified three or more children is eligible to receive about $6,431 as EITC benefits, while individual taxpayers will receive about $519 of EITC. It is advisable for families and individual taxpayers with less than $55,000 as income to learn about the opportunity through EITC Assistant on the IRS website. The software is designed to aid taxpayers in filing status if their child or children are qualified to earn the EITC benefits and estimate the amount to be earned.


Uncle Sam’s Definition of Disability

Social Security has its method of defining disability differently from the way other programs do. The benefits of Social Security are only accessible to disabled persons. Those that are partially or short termed disabled are not eligible under this scheme. Here are the rules used by the SSA to determine qualification.

  • Your medical condition has exempted you from working and indulging in substantial gainful activity (SGA).

  • The medical condition exempts you from doing previous work or applying for a new job.

  • The medical condition has existed for a year or more or resulted in death.

The rule may be strict, but that's because the Social Security scheme assumes a family can provide for a short-term disability through the worker's compensation plan, insurance, investments, and savings.

 

Since Disability Benefits are Unearned Income, are They Taxed?

Most payments received by disabled individuals are considered unearned income. This income may not be taxable under specific disability regulations. But aside from that, payments considered earned income are subject to tax by law.


Some Disability Payments Not Taxable

People who serve in the military and become disabled are not subject to tax due to their service. Meaning military disability payments are tax-deductible. However, any money earned from the disability pension board due to your military service should be included when filing your income.


Other disability-related payments that are tax-deductible are:

  • Benefits earned from public welfare funds like payments due to blindness

  • Compensation payment based on sickness or injury at work under the worker’s compensation plan is exempted except if the amount exceeds that set by Social Security benefits.

  • Compensatory physical injury or sickness but not punitive

  • Benefits covered by no-fault car insurance policy due to loss of income or  inability to earn money due to injury

  • Compensation payment made due to permanent loss of body part used to work or for permanent disfiguration

However, most of the earnings made by a disabled individual under the Social Security disability program are not taxed.

 

The requirements to be qualified for the benefit 

To be eligible for these benefits, you have to

  • Have worked jobs under the Social Security scheme

  • Have a condition considered a disability under the Social Security strict laws on disabilities.

Monthly payments are made to a disabled person who cannot work for a year or more. Benefits are paid until the person can work again. Other schemes of special rules continue paying benefits and health care coverage to disable persons before recovery. 


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