Who Can Get Tax Forgiveness When You Receive SSDI

Tax forgiveness for disabled adults usually means one of two things: you owe back taxes and the IRS has programs that reduce or erase what you owe, or you receive income that is not taxed at all because of your disability status. The first path—tax debt relief—is available to anyone with unpaid taxes, disabled or not, but people on SSDI often may have access to because their income is low. The second path involves specific tax credits tied to disability itself, which have strict rules about income and the type of disability.

The most common form of tax forgiveness for disabled adults is the Earned Income Tax Credit (EITC), which reduces or erases federal income tax for people with low earned income. If you work while on SSDI, you may may have access to. A second option is the Disabled and Elderly Tax Credit, which applies only if you are permanently and totally disabled and meet income limits. A third is Supplemental Security Income (SSI), which is not taxed at all—but SSI is a separate program from SSDI with much lower income and resource limits.

Key Takeaways

  • The Earned Income Tax Credit can reduce your federal tax bill to zero or produce a refund if you work and earn less than roughly $16,000 to $60,000 per year, depending on your filing status and dependents.
  • The Disabled and Elderly Tax Credit requires proof of permanent and total disability from the IRS, not just an SSDI award, and applies only if your adjusted gross income is under $17,500 to $43,750 depending on filing status.
  • SSI income itself is never taxed, but SSDI is taxable income; up to 85 percent of your SSDI can be included in your taxable income if your combined income exceeds certain thresholds.
  • Back taxes owed by people with low income may be forgiven through IRS hardship programs, but you must request relief; the IRS does not forgive automatically.
  • Work incentives like the Plan to Achieve Self-Support (PASS) can shelter earned income from both SSDI work rules and tax calculations, potentially lowering your tax bill.

The Earned Income Tax Credit and SSDI Work Income

If you work while receiving SSDI, the Earned Income Tax Credit (EITC) is the most direct path to tax forgiveness. The EITC is a refundable credit, meaning if the credit is larger than the tax you owe, the IRS sends you the difference as a refund. In 2024, the maximum EITC for a single filer with no dependents is roughly $1,900; with one dependent, roughly $3,900; with two dependents, roughly $6,400; with three or more, roughly $6,900. These amounts change yearly.

To claim the EITC, you must have earned income—wages from a job, self-employment income, or certain other sources. SSDI itself does not count as earned income. Your total income (earned plus unearned, including SSDI) must fall below the limit for your filing status. For 2024, the income limit for a single filer with no dependents is about $16,800; with one dependent, about $43,500; with two dependents, about $56,000; with three or more, about $60,000. These limits also change yearly.

You claim the EITC on your federal tax return using Form 1040 and Schedule EIC. You do not need to request it separately. If you earned income but did not file a return because your income was too low, you can still file to claim the EITC and receive a refund. The IRS allows you to claim the EITC for up to three prior years if you did not file.

The Disabled and Elderly Tax Credit for Permanent Disability

The Disabled and Elderly Tax Credit, also called the Credit for the Elderly and the Disabled, is a federal tax credit separate from the EITC. It applies if you are age 65 or older, or if you are permanently and totally disabled. The credit amount is up to $7,500 depending on your filing status and income, but it is not refundable—it can only reduce your tax bill to zero, not produce a refund.

The key requirement is permanent and total disability as defined by the IRS, not by the Social Security Administration. You must have a physical or mental condition that makes you unable to engage in any substantial gainful activity, and the condition must be expected to last at least 12 months or result in death. An SSDI award does not automatically prove this to the IRS; you must provide documentation. The IRS accepts an SSA information of disability as evidence, but you may need to file Form 8821 (Tax Information Authorization) to allow the IRS to contact SSA directly, or provide a copy of your SSA award letter.

Your adjusted gross income must be below $17,500 (single), $26,250 (married filing jointly), or $13,125 (married filing separately) to claim this credit. These limits do not change yearly. You claim the credit on Form 1040 using Schedule R. Because the income limits are strict and the credit is not refundable, this credit helps mainly people with very low income and little or no tax liability.

SSI Income and Tax-Free Status

Supplemental Security Income (SSI) is a separate federal program from SSDI. SSI payments are never taxed as income, regardless of how much you receive or what other income you have. If you receive only SSI and no other income, you owe no federal income tax and do not need to file a return.

However, SSI has much stricter rules than SSDI. Your monthly payment is lower (the federal rate in 2024 is $943 per month for an individual, though some states add more). You can own no more than $2,000 in countable resources (SSDI has no resource limit). Your earned income is counted against your SSI payment at a steep rate: the first $65 per month is not counted, then 50 percent of the rest is deducted from your payment. SSDI, by contrast, has work incentives that allow you to earn more before your benefits are reduced.

If you receive both SSDI and SSI, the SSI portion is not taxed, but the SSDI portion is. You must report the SSDI on your tax return. Some people switch from SSDI to SSI or vice versa depending on their work and income situation; a work incentive specialist can help you understand which is better for your circumstances.

How SSDI Itself Is Taxed

SSDI is taxable income to the federal government, though not to state or local governments. You do not pay Social Security tax (the 6.2 percent withheld from paychecks) on SSDI, and the SSA does not withhold federal income tax automatically. This means you may owe tax at the end of the year even though no tax was taken from your SSDI payments.

Whether you actually owe tax on SSDI depends on your combined income—SSDI plus any other income you have. If your combined income is below a certain threshold, none of your SSDI is taxed. The threshold is $25,000 for a single filer, $32,000 for married filing jointly, and $0 for married filing separately. If your combined income exceeds the threshold, up to 50 percent of your SSDI above the threshold is taxable; if your combined income is very high, up to 85 percent of your SSDI is taxable.

You report SSDI on your tax return using Form SSA-1099, which the SSA mails to you by January 31 each year. If you do not receive one, contact the SSA. You can request that the SSA withhold federal income tax from your SSDI payments using Form W-4V, which prevents a surprise tax bill at the end of the year.

IRS Hardship Programs for Back Taxes

If you owe back taxes and cannot pay, the IRS has programs that can reduce or erase what you owe. These are not specific to disability, but people on SSDI often may have access to because their income is low.

Offer in Compromise allows you to settle a tax debt for less than you owe if you cannot pay the full amount and have little prospect of being able to pay in the future. The IRS looks at your income, expenses, and assets to decide whether to accept a lower payment. You must file Form 656 and include a financial statement. The process takes several months.

Currently Not Collectible (CNC) status temporarily pauses collection of your tax debt if you are in severe financial hardship. While in CNC status, the IRS does not pursue collection, though interest and penalties continue to accrue. You must reapply every two years. CNC is not forgiveness; it is a pause.

Hardship Discharge can erase a tax debt if you are in severe hardship and unlikely ever to be able to pay. This is rare and requires proof that paying would prevent you from meeting basic living expenses. You must request it in writing and provide detailed financial information.

To explore these options, contact the IRS at 1-800-829-1040 or visit irs.gov. You can also work with a tax professional or a low-income taxpayer clinic, which are free legal aid organizations that help people with tax issues.

Work Incentives That Lower Your Tax Burden

Several SSDI work incentives can reduce your taxable income or shelter earned income from both SSDI work rules and tax calculations. The most powerful is the Plan to Achieve Self-Support (PASS), which allows you to set aside earned income for a specific work goal—education, training, starting a business, or buying equipment—without that income counting against your SSDI or your taxes.

For example, if you earn $2,000 per month and set aside $1,200 under a PASS for vocational training, only $800 counts toward your SSDI work rules, and the $1,200 does not appear on your tax return as income. You must have a written PASS plan approved by the SSA. The plan must show how the set-aside money will help you reach your work goal and become self-supporting.

Other work incentives like the Student Earned Income Exclusion (if you are under 22 and a student) and the Impairment Related Work Expenses (IRWE) deduction (for costs directly related to your ability to work) can also reduce your countable income. These do not directly reduce your tax bill, but they can keep your SSDI higher, which affects how much SSDI is taxable.

Frequently Asked Questions

Does receiving SSDI automatically disqualify me from the Earned Income Tax Credit?

No. SSDI itself does not count as earned income, so it does not help you may have access to for the EITC. But if you work and earn wages or self-employment income, you can claim the EITC based on that earned income, even if you also receive SSDI. Your total income (earned plus SSDI) must still fall below the EITC income limit for your filing status.

If I owe back taxes, will the IRS forgive them because I am disabled?

Disability alone does not trigger automatic forgiveness. However, if your income is very low, you may be able to request an Offer in Compromise, Currently Not Collectible status, or hardship discharge. You must contact the IRS and request relief; they do not offer it on their own. A tax professional or low-income taxpayer clinic can help you explore.

Should I have the SSA withhold federal income tax from my SSDI?

That depends on whether you have other income and whether you prefer to pay tax gradually or in a lump sum at tax time. If you work and expect to owe tax, withholding can prevent a large bill in April. If you have little or no other income, you may owe no tax and withholding would just reduce your monthly payment. File Form W-4V with the SSA to request withholding, or do not file it if you prefer not to withhold.

Can I claim both the EITC and the Disabled and Elderly Tax Credit?

No. You can claim only one. The EITC is usually more valuable if you have earned income, because it is refundable and the credit amount is higher. The Disabled and Elderly Tax Credit is useful mainly if you have little or no earned income and are permanently and totally disabled as defined by the IRS.

What is the difference between SSI and SSDI for tax purposes?

SSI payments are never taxed. SSDI payments are taxable if your combined income (SSDI plus other income) exceeds certain thresholds. SSI has much lower income and resource limits than SSDI. If you receive both, only the SSDI portion is taxable.