What Tax Credits You May Receive While on SSDI

Yes, there are tax credits you may be able to claim if you receive SSDI. The main one is the Earned Income Tax Credit (EITC), which reduces the federal income tax you owe based on your earned income and household size. A second option is the Credit for Other Dependents, which applies if you support a child or relative who does not meet EITC rules. You may also claim the Child and Dependent Care Credit if you pay for childcare so you can work.

SSDI payments themselves are not taxable income, so they do not count toward your income when you calculate these credits. However, if you work part-time or full-time while on SSDI, your wages do count, and that earned income is what makes you may be able to access for the EITC. The amount you receive depends on how much you earned, your filing status, and how many dependents you claim.

You do not have to be working to claim some credits — for example, the Credit for Other Dependents applies whether you work or not. But the EITC, which is usually the largest credit for low-income workers, requires that you have earned income from a job or self-employment.

Key Takeaways

  • The Earned Income Tax Credit is the main tax credit for SSDI recipients who work, and it can reduce your tax bill by hundreds or thousands of dollars depending on your earnings.
  • SSDI payments do not count as income for tax credit purposes, so only your wages or self-employment income matter when you calculate the EITC.
  • You claim these credits on your federal tax return using IRS Form 1040 and Schedule EITC, or you can have a tax preparer file for you.
  • If you earned very little or no income during the year, you may still owe no tax, but filing a return can result in a refund if you claim the EITC.

How the Earned Income Tax Credit Works for SSDI Recipients

The EITC is a refundable tax credit, meaning that if the credit is larger than the tax you owe, the IRS sends you the difference as a refund. For 2023, the maximum EITC was $3,995 for a single person with no children, $3,995 for a married couple filing jointly with no children, $3,733 for a single parent with one child, $6,164 for a single parent with two children, and $6,935 for a single parent with three or more children. These amounts change each year.

To claim the EITC, you must have earned income — wages from a job, net self-employment income, or both. SSDI does not count. Your total earned income must fall below a limit set by the IRS each year; for 2023, the limit ranged from about $16,000 to $57,000 depending on your filing status and number of dependents. If you earned more than the limit, you cannot claim the EITC that year.

You claim the EITC on your federal tax return. If you file yourself, you use IRS Form 1040 and Schedule EITC. If you use a tax preparer or tax software, they will ask you questions about your income and dependents and calculate the credit for you. The IRS also offers free tax filing through the IRS Free File program if your income is below a certain threshold.

Other Credits You May Claim Alongside SSDI

The Credit for Other Dependents gives you up to $500 per dependent who does not meet the rules for the EITC or Child Tax Credit. This includes adult children, parents, siblings, or other relatives you support, as long as they live with you for the entire year, are a U.S. citizen, national, or resident alien, and you provide more than half their financial support. Unlike the EITC, this credit does not require you to have earned income.

The Child and Dependent Care Credit applies if you paid someone to care for a child under age 13 or a disabled dependent so that you could work or look for work. You can claim up to $3,000 in care expenses for one dependent or $6,000 for two or more. The credit is worth 20 to 35 percent of those expenses, depending on your income. You claim this credit on IRS Form 2441.

If you have a child under age 17, you may also claim the Child Tax Credit, which is worth up to $2,000 per child. This credit is separate from the EITC and the Credit for Other Dependents, and you can claim more than one in the same year if you meet the rules for each.

How SSDI Income Does Not Affect Your Tax Credits

SSDI benefits are not counted as taxable income by the IRS. This means that when you calculate your income for tax credit purposes, you exclude all SSDI payments you received during the year. Only earned income — wages, tips, and self-employment income — counts toward the income limits for the EITC and other credits.

This is a significant advantage if you receive both SSDI and wages. For example, if you received $15,000 in SSDI and earned $10,000 from part-time work, your income for EITC purposes is $10,000, not $25,000. This lower income figure may make you may be able to access for a larger EITC or keep you within the income limits when you might otherwise exceed them.

However, if you have other types of income — such as interest, dividends, rental income, or capital gains — those do count toward your income limits. SSDI is the only major income source that is excluded.

Filing Your Tax Return and Claiming Credits

You must file a federal tax return to claim the EITC, even if you owe no tax. You can file on your own using IRS Form 1040 and the appropriate schedules, or you can use tax software, or you can work with a tax preparer. The IRS Free File program offers free filing through approved software providers if your income is below the threshold — for 2023, that was $73,000 for most filers.

When you file, you will need your Social Security number, your ITIN if you are not a U.S. citizen, information about any dependents you claim, and records of your earned income — W-2 forms from employers or Schedule C if you are self-employed. You do not need to report SSDI income on your return, but you should have a record of how much you received in case the IRS asks.

The important date to file is usually April 15 of the year after the tax year ends. If you cannot file by then, you can request an extension, though this does not extend the important date to pay any tax you owe. If you are owed a refund, there is no penalty for filing late, and you can claim the refund for up to three years after the original important date.

What Happens If You Underreport or Overreport Income

If you claim the EITC and the IRS later determines that you reported your income incorrectly, they will recalculate the credit and either send you a bill for the overpayment or reduce your future refund. This can happen if you forgot to report some wages, miscalculated self-employment income, or claimed a dependent who did not meet the rules.

To avoid this, keep copies of all W-2 forms, 1099 forms, and receipts related to your income and any expenses you deduct. If you use a tax preparer, ask them to explain how they calculated your income and which dependents they claimed. If you file yourself, double-check the income limits and dependent rules for the year you are filing.

If the IRS sends you a notice that you owe money back, you have the right to respond and provide additional information. You can also request help from a tax professional or contact the IRS directly to discuss the issue.

Frequently Asked Questions

Do I have to report my SSDI income on my tax return?

No. SSDI is not taxable income, so you do not report it on your federal tax return. However, you should keep a record of how much SSDI you received in case the IRS asks. If you have other income sources, you report those separately.

Can I claim the EITC if I did not work the entire year?

Yes, as long as you had some earned income during the year. The amount of the credit depends on how much you earned. If you earned very little, you may still be able to claim a credit, though it will be smaller than if you had earned more.

What if I am married and my spouse does not work?

You can file jointly and claim the EITC based on your earned income alone. Your spouse's SSDI or other non-earned income does not reduce the credit. However, your spouse must have a valid Social Security number or ITIN to be included on the return.

Can I claim a tax credit for my adult child who receives SSDI?

Only if your adult child meets the dependent rules: they live with you for the entire year, are a U.S. citizen or resident alien, and you provide more than half their financial support. If they meet these rules, you can claim the Credit for Other Dependents, worth up to $500.

Where do I find out the current income limits for the EITC?

The IRS publishes income limits each year on their website and in the instructions for Form 1040 and Schedule EITC. You can also call the IRS at 1-800-829-1040 or visit irs.gov to find the limits for the year you are filing.