What Is the IRS Definition of Disabled?
The IRS has its own definition of disability for tax purposes. Understanding these specific criteria is key to determining your eligibility for tax relief.
The Internal Revenue Service (IRS) maintains a distinct definition of disability for federal tax purposes. This definition determines eligibility for specific tax relief and may not align with the criteria used by other government bodies, such as the Social Security Administration. Understanding and meeting the IRS standard is necessary for taxpayers seeking to access these provisions.
The “Permanently and Totally Disabled” Standard
For tax purposes, the IRS defines disability as being “permanently and totally disabled.” This standard is composed of two conditions. The first is that a physical or mental condition prevents the person from engaging in any “substantial gainful activity” (SGA). The second is that a physician must certify the condition has lasted, or is expected to last, continuously for at least 12 months, or that it can be expected to result in death.
Substantial gainful activity involves the performance of significant duties for pay or profit. The determination of SGA is based on the actual work performed and compensation received, not just a job title. For example, work is considered substantial if earnings exceed a certain threshold. For 2024, this amount is $1,550 per month for non-blind individuals.
The nature of the work is also a factor. Work can be substantial even if it is part-time. The IRS looks at whether the activities are comparable to those of non-disabled individuals in the same role within their community. Activities such as managing personal finances or basic household chores are not considered SGA.
The durational requirement of the disability is the second part of the standard. This 12-month period is a forward and backward-looking test. The condition does not need to have already lasted for a full year at the time of the tax filing, as long as a medical professional expects it to meet that duration.
Required Physician’s Certification
To substantiate a claim of disability, a taxpayer must secure a formal certification from a qualified physician. This statement is not submitted with the initial tax return but must be kept with personal tax records in case the IRS requests it. The physician providing the certification must be a doctor of medicine or osteopathy legally authorized to practice in their state.
This certification serves as the primary proof that the taxpayer meets the “permanently and totally disabled” standard. It is the taxpayer’s responsibility to obtain this complete and accurate statement before filing their return and to ensure it is available if the IRS initiates an inquiry.
Tax Implications and Related Filings
Meeting the IRS definition of permanently and totally disabled allows access to specific tax benefits, primarily the Credit for the Elderly or the Disabled. This nonrefundable credit provides tax relief to lower-income individuals who are elderly or have a qualifying disability. To claim it, an eligible taxpayer must file Schedule R with their Form 1040 or 1040-SR. The credit calculation is based on filing status, adjusted gross income (AGI), and any nontaxable Social Security or pension benefits received.
Income limitations are a significant factor in qualifying for this credit. For a single individual, the AGI must be less than $17,500, and the total of nontaxable Social Security and pension income cannot exceed $5,000. These thresholds mean the credit is targeted toward those with modest incomes. The purpose of Schedule R is to guide the taxpayer through the calculation to determine the exact amount of the credit.
Another tax implication relates to early distributions from retirement plans, such as a 401(k) or an IRA. Withdrawals made before age 59½ are subject to a 10% additional tax, but an exception exists for individuals who are totally and permanently disabled. This allows a taxpayer to avoid this 10% additional tax when taking an early distribution due to their disability.
To claim this exception, the taxpayer must file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. On this form, the taxpayer reports the early distribution and enters an exception code for disability. This filing signals to the IRS that the withdrawal is exempt from the penalty.