If you’re receiving disability benefits you should know that you do need to file taxes on disability benefits. Disability benefits count as income, which means they are taxable. However, filing taxes on disability income is a little different from filing taxes on other types of income. Here’s a step-by-step guide you can use to file taxes on your disability benefits:
1. Gather Your Documents
The first thing that you need to do is make sure that you have copies of all the documents that you will need to fill out your tax forms. The essential documents you will need are:
- Any W-2s that you were sent
- Any 1099 forms that you filled out during the year
- Your disability benefit statement showing how much money you received in disability benefits
- A copy of your ID like your driver’s license or Social Security card.
It’s a good idea to keep all your tax documents together in one place so that you’ll have easy access to them.
2. Understand Your Disability Benefits
It’s important to know which type of disability benefits you are receiving so that you will be able to fill out tax forms correctly. You may be receiving disability benefits, SSI, survivor benefits, VA disability benefits, or other types of benefits that are considered taxable.
3. Determine Your Filing Status
Your filing status refers to the number of people in your household and your marital status. If you are single then you are automatically the head of your household and filing individually. If you are married you may file jointly or separately. And if you have children that will affect your filing status as well.
4. Calculate Your Total Income
To determine your total income you will need to add up all of the money that your household had during the year. Household income includes your disability benefits, interest from bank accounts or other interest-bearing accounts, annuities, and dividends that you may receive.
5. Explore Deductions and Credits
Deductions and credits lower the amount of household income that will be taxes. Check out any sources of potential deductions and credits. If you are disabled some of your medical expenses or cost of medical equipment may be deductible. And you may qualify for tax credits like the Earned Income Tax Credit. It’s important to explore all potential deductions and credits to keep your taxes low. If you are not sure if something qualifies for a particular deduction or credit you can talk to a tax professional to find out.
6. Reporting Your Disability Benefits
You may not have to pay taxes on all of your disability benefits. It’s important that you know how much of your disability benefit is considered taxable income and how much is tax-exempt. Your Social Security disability benefit statement should clarify how much of your particular benefit amount is taxable.
7. Complete the Tax Forms
Once you have all of your documents and information ready you can fill out the tax forms that are appropriate for your household. You may be able to fill out the 1040 EZ version of income tax if your household income is low and you don’t have a lot of investments or other income to document.
8. Consult a Tax Professional
If you have questions about your taxes, or if you’re not sure how to fill out some of the forms it’s always a good idea to talk with a tax professional. It’s much better to ask questions now and get help filling out the forms than it is to deal with mistakes in your taxes later on.
9. Review and Double-Check
Double check your figures and make sure that all of the forms are filled out correctly. You may want to have a tax professional check them over to be sure they’re correct before you file your taxes.
10. File Your Taxes
You can file your taxes online, or you can mail in the paper forms to the IRS. If you’re mailing your taxes make sure they are postmarked by the required date or else you may get stuck with a late filing fee.
11. Payment or Refund
If you owe money to the IRS you can make a payment directly to the IRS, mail a check, or explore payment plans by talking to an IRS representative. If you are owed a refund you can choose to get a check in the mail or have your refund directly deposited into your bank account.
12. File on Time
The IRS deadline to file taxes is almost always April 16th, unless the 16th falls on a weekend. Double check the date and make sure that your taxes are filed online or mailed before that date.
Sources and Tax Form Information:
https://turbotax.intuit.com/tax-tips/disability/is-social-security-disability-taxable/L5fPDpT4P
https://www.nationaldisabilityinstitute.org/financial-resilience-center/taxes-and-tax-prep/
IRS Forms: https://www.irs.gov/forms-instructions
https://www.irs.gov/individuals/more-information-for-people-with-disabilities
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