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5 Tips for Spouses of Taxpayers Receiving Disability Income

Credits and Deductions Individual Taxes Newlyweds and Couples
A wife and pushes her husband in a wheelchair as they discuss how disability income will affect their taxes

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Updated for tax year 2023.

If your spouse receives disability benefits, it’s very likely that your financial situation has also been impacted. That’s why it’s important to understand what sections of the tax code apply to you and your spouse regarding disability taxes. Here are some tips to keep in mind if your spouse receives disability income.

1. Know whether you need to pay taxes on your spouse’s disability income.

The taxability of disability insurance income is determined based on who paid the premiums for the policy:

  • Disability income is not taxable if your spouse paid for the disability insurance premiums using after-tax money.
  • If your spouse receives Social Security disability benefits, and you have significant other income, you may need to pay disability taxes. But if you have little or no other income, you may not have enough taxable income to owe federal income tax.
  • If your spouse receives disability benefits from their employer or an insurance plan paid for by their employer, those benefits are taxable income.

Our Guide to Social Security Taxes provides a more in-depth look at when Social Security benefits are taxable.

Thankfully, if you file using TaxAct®, our tax preparation software can help take the guesswork out of disability benefits. We’ll ask you detailed interview questions about all your income and benefits to help you file accurately and with confidence.

2. Adjust your income tax withholding if necessary.

If you are now in a lower tax bracket because your spouse cannot work, you probably owe far less in taxes than you used to pay. Because of that, you may need to adjust your Form W-4 to claim additional withholding allowances.

Always estimate your taxes before making adjustments to avoid an unpleasant tax bill when you file.

3. Claim the Tax Credit for the Elderly and Disabled.

The Tax Credit for the Elderly and Disabled ranges from $3,750 to $7,500 and is available to qualifying low-income taxpayers. Eligibility depends on whether you meet specific Internal Revenue Service (IRS) requirements, including the adjusted gross income (AGI) limit. If you work full-time and your spouse receives disability benefits, your AGI is likely over the limit, and you would not qualify for this tax break.

If you are married filing jointly, your spouse may qualify for the credit if either of the following applies:

  • They were 65 or older at the end of 2023.
  • They were under 65 in 2023 but retired on permanent and total disability, received disability income for 2023, and had not reached the mandatory retirement age as of Jan. 1, 2023.

If your spouse meets either of the requirements above, you can generally claim the tax credit if you file a joint return and your AGI is less than $20,000. The credit is nonrefundable, meaning any excess credit cannot be received as a tax refund if it exceeds your income tax liability.

For more information on this credit, check out IRS Publication 524. If you still aren’t sure if you qualify, irs.gov also has a helpful tool: Do I qualify for the credit for the elderly or disabled?

4. Claim the Child and Dependent Care Credit.

If you pay someone to care for your spouse while you work (or look for work), you may qualify for the Child and Dependent Care Credit. This credit is based on a percentage of the care expenses you paid. For 2023, the credit is worth anywhere from 20% to 35% of qualified care expenses, up to a maximum of $3,000 for one qualifying dependent.

To qualify, your spouse must be physically or mentally incapable of caring for themselves and live with you for over half the tax year. You must also have earned income from a job unless you qualify for an exception as a student or are also disabled. You cannot claim the credit for money you pay to yourself or certain other relatives.

5. Keep track of medical expenses all year.

Claim your medical expenses if the total exceeds the deductible threshold on your tax return. For tax year 2023, you can deduct expenses that exceed 7.5% of your AGI. That includes the cost of care for yourself, your spouse, and any other dependents.

A few commonly missed medical deductions are expenses for travel to receive medical care, prescription costs, and vehicle mileage used for getting care in your local area. One potentially significant medical expense is the cost of modifying your home for someone with a disability. This can include expenses such as wheelchair ramps, stair lifts, wider doorways, and grab bars.

The bottom line

While navigating disability taxes can be complex, understanding the nuances is important because it can significantly impact your financial situation. Make sure you know if your disability income is taxable, adjust withholding accordingly, claim any tax benefits available to you, and keep track of potentially deductible medical expenses. TaxAct can help simplify the process of reporting taxable disability income and ensure that you’re taking advantage of all eligible tax breaks.

This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.

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