Having a permanent disability is a life-changing happening. Not being able to work can leave you wondering how you’re going to make ends meet. Thankfully, you have long-term disability insurance benefits to help.
Unfortunately, the IRS does not tax your disability money. The government is still going to want to receive their share of your benefit money. That is, of course, unless you qualify for the disability income tax credit. This credit is a way to save you some money come tax time for eligible taxpayers.
The IRS has established four determinants of eligibility. First off, you must be 65 years or older during the tax year. If you are under 65 years old, you may still qualify if you are retired due to permanent and total disability or if you receive taxable disability benefits throughout the year. You must also not meet the minimum retirement age on the first day of the tax year.
Your doctor must also provide a statement declaring you permanently and totally disabled.
Only the money from your once-employer’s accident, health or pension plan is applicable to the tax credit. That means that money from cashed out vacation and sick time, 401Ks and other plans not intended for disability benefits.
Finally, you must file as single, head of household or a widower with a gross annual income of $17,500 and receive less than $5,000 in non-taxable social security and pension. Joint filers must not have an adjusted gross annual income greater than $20,000 and the same limit on social security and pension funds received.
Don’t pay taxes you don’t need to.
Long-term disability insurance is essential for many people like you to live month-to-month. It’s important to plan for things like taxes but also to be able to take advantage of all tax credits that are available to you. You shouldn’t lose your money if you don’t need to.