How to Pay Income Tax on Disability Income

There is a general misconception that people on disability do not make enough money to pay taxes. Disability can be short-term, long-term or permanent.  People on disability may be partially or fully disabled. To be disabled means you cannot return to your normal, customary occupation, or be limited in performing its job duties. However, you may be able to work part-time to get new skills which means you have additional income. 

During the year:

• Add up the amount of your disability income and the additional income.


• Look to see if any money is taken out of the additional income for payroll taxes, like income taxes.


• See if you can file “0” on the W4 form, or add a withholding to the other sources.


• Estimate how much you will earn for a 3-month or quarter of the year.


• Figure out how many people you will carry on your tax form.


• Determine your marital status for filing; single, married, married filing separately or Head of Household.


• Contact the IRS to see what the estimated taxes for the total estimated amount would be due.  

End of the year:

• Gather your 1099 for the disability income and W2 for the earned income.


• Gather together records of all medical appointments.


• Add up the total of all co-pays.


• Add up the total of all mileage both ways to the doctor.


• Add up the total of all medications and medical equipment.


• Gather paperwork for normal income tax deductions, like mortgage taxes and mortgage interest for an example.


• Decide how you wish to file your taxes, written paper, input it on the computer or go get someone to help you.


• Compute the above information to see whether any additional money is due to the IRS.