Disability and Earned Income Tax Credit
Some disability retirement benefits qualify as earned income to claim the Earned Income Tax Credit or EITC. Also, you may claim a relative of any age as a qualifying child if the relative is totally and permanently disabled and fits all other EITC requirements.
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What Disability Benefits Qualify as Earned Income for EITC?
IRS considers disability retirement benefits as earned income until you reach minimum retirement age. Minimum retirement age is the earliest age you could have received a pension or annuity if you did not have the disability.
After you reach minimum retirement age, IRS considers the payments your pension and not earned income.
Benefits such as Social Security Disability Insurance, SSI, or military disability pensions are not considered earned income and cannot be used to claim Earned Income Tax Credit (EITC). You may qualify for the credit only if you,or your spouse, if filing a joint return, have other earned income.
Read more about additional requirements for qualifying for EITC here. Or, use the EITC Assistant to help you determine if you meet the additional requirements for qualifying for EITC. EITC Assistant in English. Spanish EITC Assistant Version.
Read more about Disability Benefits in Publication 596, Earned Income Credit or Publication 596 (SP), Credito por Ingreso del Trabajo
Disability Insurance Payments. Payments you received from a disability insurance policy that you paid the premiums for are not earned income. It does not matter whether you have reached minimum retirement age. If this policy is through your employer, your Form W-2 may show the amount in box 12 with code “J.” Read more about Life Insurance & Disability Insurance Proceeds here.
A Qualifying Child with a Disability
To be your qualifying child for EITC, a child must have a Social Security Number that is valid for employment and pass all the age, relationship, residency, and joint return tests. Your child must be your son, daughter, adopted child, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister or a descendent of any of them.
Age Test for Qualifying Child with a Disability. There is no age limit and the child does not have to be younger than you if the qualifying child is permanently and totally disabled. Your qualifying child is permanently and totally disabled if both of the following apply:
- He or she cannot engage in any substantial gainful activity because of a physical or mental condition and
- A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.
If the qualifying child receives disability benefits, you can still use the child for EITC purposes. Read more about the additional tests for a qualifying child here.
Proof of Permanently and Totally Disabled. To prove your claim of EITC for a child who is permanently and totally disabled, you need a letter from the child’s doctor, other healthcare provider or any social service program or agency verifying the child is permanently and totally disabled.
Sheltered Employment. A child working for minimal pay under a special program for people with disabilities is not engaged in a “substantial gainful activity” under the definition of permanently and totally disabled. Work for minimal pay offered to people with physical or mental disabilities or sheltered employment must be offered by qualified locations. Qualified locations are:
- Sheltered workshops,
- Hospitals and similar institutions,
- Homebound programs, and
- Department of Veterans Affairs (VA) sponsored homes.
What do I have to do to get EITC?
You must file a tax return to determine your eligibility to claim the EITC. Many miss out because they owe no tax so do not file a tax return.
Free Tax Assistance. Special assistance is available for persons with disabilities. If you are unable to complete your tax return because of a disability, you may be able to obtain assistance from an IRS office or the Volunteer Income Tax Assistance or Tax Counseling for the Elderly Programs sponsored by IRS.
Free File Your Return. Free File is the fast, easy and free way to prepare and e-file your federal taxes online. The Free File program provides free federal income tax preparation and electronic filing for eligible taxpayers through a partnership between the Internal Revenue Service and the Free File Alliance LLC, a group of private sector tax software companies. Or you can use the free fillable tax forms feature. Find out more about Free File here.
EITC Impact on Other Government Benefits
Refunds received from the Earned Income Tax Credit (EITC or EIC), the Child Tax Credit (CTC) or other refundable credits are not considered income and is not counted as a resource for at least 12 months from when your receive it for benefits or assistance under any Federal program or under any State or local program financed in whole or in part with Federal funds.
But, it is always best to check with your local benefit coordinator to find out if your benefits fall under this provision.
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• Publication 3966, Living and Working with Disabilities
• Publication 3966 (SP) Serie del Cicio de Vida: Viviendo Y Trabajando Con Incapacidades
• Publication 907, Tax Highlights for Persons with Disabilities
• Publication 4808, Disability and EITC
• Publication 4808 (SP)