Does Disability Income Count Toward Your Adjusted Gross Income?

Disability income is generally not nearly as much money as you would make by working without a disability. Therefore, it is not surprising you would be concerned about income taxes further eating away at this income source. How you report disability income to the Internal Revenue Service depends primarily on who pays for the disability insurance policy.

Adjusted Gross Income Defined

Adjusted gross income is your total taxable income minus certain deductions. Total income includes wages, interest, dividends, alimony, business income, capital gains, retirement distributions, unemployment compensation and Social Security payments. Once total income is calculated, certain deductions are subtracted to arrive at adjusted gross income. Common deductions include educator expenses, health savings account contributions, moving expenses, certain self-employment expenses, alimony payments, individual retirement account contributions, student loan interest and tuition.

Public Disability Income

Social Security Disability Insurance is a program of the Social Security Administration that employees and employers pay into through mandatory tax withholdings. SSDI income is taxable if your total income exceeds $25,000 if you are single or $32,000 if you are married and filing jointly. You will need to fill out the Social Security benefits worksheet included with the instructions for filing your federal taxes to determine how much of your benefits should be included in your adjusted gross income. SSDI provides income for people who are totally disabled and unable to work rather than for partial disabilities that private disability insurance plans may cover.

Self-Paid vs Employer Paid Disability Policy

If you pay for your own disability insurance policy, you do not need to claim disability income on your federal tax return. However, if your employer pays for your disability policy, you must include any disability payments as income when you file your taxes. Each state has its own way of determining state taxable income. Contact your state's revenue department to determine how disability income is to be reported for state income taxes.

Reporting Disability Income

The disability income you received is reported on Form 1099R. If you have not reached retirement age, this amount is reported with wages on line 7 of Form 1040. Once you have reached retirement age as determined by your employer, this amount should be reported on lines 16a and 16b of Form 1040. If federal tax was withheld from your disability payments, you must attach Form 1099R to you tax return for filing.


About the Author

Dawn Aldridge has worked in accounting and business since 2004. Her diverse experience includes public, small business and government accounting, as well as logistics and inventory management. She holds an MBA from the University of Illinois at Springfield.