IRS Rules for Being Permanently and Totally Disabled

The Internal Revenue Service (IRS) provides specific rules for individuals who are permanently and totally disabled. These regulations determine eligibility for certain tax benefits and have distinct requirements for proof and documentation.

IRS Definition of Permanently and Totally Disabled

To be considered permanently and totally disabled by the IRS, an individual must meet two specific conditions. The first is that an individual cannot engage in any “substantial gainful activity” (SGA) because of their physical or mental condition. While the IRS defines SGA qualitatively, the Social Security Administration (SSA) provides income thresholds that serve as a benchmark. For 2025, earning more than $1,620 per month for non-blind individuals, or $2,700 for blind individuals, is considered engaging in SGA.

The second condition is that a physician must certify the physical or mental impairment. This certification must state that the condition prevents the person from engaging in any substantial gainful activity. The physician must also determine that the condition has either lasted or is expected to last continuously for at least 12 months, or that it can be expected to result in death.

The IRS specifies that SGA is not the same as work done for self-care, managing a home, or unpaid activities like hobbies or school attendance. However, the nature of any work performed can be a factor in determining if someone is capable of SGA. Simply being unemployed for a period is not, by itself, conclusive evidence of an inability to engage in substantial gainful activity.

Required Documentation to Prove Disability

The primary form of proof is a detailed statement from a qualified physician. This statement must certify that the individual has a permanent and total disability, preventing them from engaging in substantial gainful activity, and that the condition is expected to last for at least 12 months or result in death. The document should include the physician’s name, address, and signature.

A physician can be a doctor of medicine (M.D.), a doctor of osteopathy (D.O.), or other medical professionals authorized to make such a certification, including ophthalmologists and optometrists for conditions related to sight. The IRS provides a template for this statement within the instructions for Schedule R (Form 1040), though a letter with the required information is also acceptable. You do not need to file this statement with your tax return but must keep it for your records in case the IRS requests it.

As an alternative to a physician’s statement, the IRS accepts certain documents from government agencies as proof of disability. A disability award letter from the Social Security Administration (SSA) for benefits like Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) is sufficient. For veterans, a VA Form 21-0172, “Certification of Permanent and Total Disability,” signed by an authorized VA official, can be used as a substitute.

Tax Implications of Disability Status

Meeting the IRS definition of permanently and totally disabled opens up several specific tax considerations.

• Eligibility for the Credit for the Elderly or the Disabled. To qualify while under age 65, you must be retired on permanent and total disability and have received taxable disability income. The non-refundable credit is subject to income limitations based on your adjusted gross income (AGI) and nontaxable benefits; for example, a single individual’s AGI must be less than $17,500 to qualify.
• An exception to the 10% early withdrawal penalty for retirement plans. You can take distributions from plans like a 401(k) or an IRA before age 59½ without the penalty. While the 10% penalty is waived, the withdrawn amount is still subject to regular income tax.
• Varied tax treatment of disability income. SSDI benefits may be partially taxable depending on your “combined income.” For an individual, if this amount is between $25,000 and $34,000, up to 50% of benefits are taxable; if it exceeds $34,000, up to 85% are taxable. Income from an employer-paid disability policy is taxable, but benefits from a policy you paid for with after-tax dollars are not. Workers’ compensation benefits are tax-exempt.
• Tax-free discharge of student loan debt. If your federal or private student loans are discharged due to a total and permanent disability (TPD), the canceled debt is not considered taxable income. This provision is effective for discharges through December 31, 2025.

Claiming Disability-Related Tax Benefits on Your Return

For the Credit for the Elderly or the Disabled

To claim this credit, you must complete and attach Schedule R to your Form 1040. In Part I, you will check the box that corresponds to your filing and disability status. In Part II, you will certify that you were permanently and totally disabled, and in Part III, you will calculate the credit amount based on your income.

For the Retirement Plan Withdrawal Exception

Report an early distribution from a retirement plan on your Form 1040. To avoid the 10% additional tax, file Form 5329, Additional Taxes on Qualified Plans. On this form, report the total distribution and enter exception code “03” to specify the disability exception. If your plan administrator correctly coded your Form 1099-R with distribution code “3,” you may not need to file Form 5329, but doing so ensures the IRS is aware of your valid exception.