What is the Earned Income Tax Credit (EITC) for Disability, and How Does It Work?
Key takeaways:
The earned income tax credit (EITC) is a refundable tax break for individuals and families with low-to-moderate income.
Individuals with a total and permanent disability may be eligible to receive the EITC.
Taxpayers who claim a qualifying adult child or relative with a disability may also be eligible to receive the EITC.
Table of contents
Approximately 23 million workers and families received the earned income tax credit (EITC) in 2023. But not everyone who is eligible for the credit claims it on their return. According to data from the IRS, 1 out of 5 eligible taxpayers don’t claim the credit .
One eligible group of individuals who may not be claiming the credit are those with disability income. However, not all disability income qualifies for the credit.
What is the earned income tax credit (EITC)?
The EITC is a tax break for individuals and families with low-to-moderate income. This includes eligible taxpayers who receive disability income. A single individual receiving disability income may qualify for the EITC if their adjusted gross income (AGI) doesn’t exceed the annual threshold.
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How does the earned income tax credit work?
Tax credits fall into two main buckets: refundable and nonrefundable. Refundable credits, such as the EITC, are desirable because they reduce the taxes owed by an individual, dollar for dollar. That means the EITC can eliminate the total amount of tax owed by an individual, also known as a tax liability.
Let’s say you have a tax liability of $500. If you have a tax credit worth $500, the credit would wipe away your entire tax liability. However, if your tax credit is worth $750, you will receive a tax refund of $250. This is how a refundable tax credit works. The leftover credit goes to the taxpayer as a refund.
The EITC amount is determined by an individual’s AGI, earned income, and family size. Disability income is considered earned income for the purposes of determining the credit. Typically, most disability income is not taxable.
Who is eligible for the earned income tax credit?
Individuals and families with low-to-moderate income may be eligible for the EITC. That income must be “earned income” under IRS rules.
Earned income includes the following:
Taxed wages, salaries, or tips received from an employer, through self-employment, or as a result of a business or farm that you own
Untaxed pay received from gig economy work or other employment
Qualified disability benefits you received before you reached the minimum retirement age
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If you received money from Social Security, unemployment, or alimony, that wouldn’t qualify as earned income.
You must also meet certain AGI requirements to qualify for the EITC. The table below shows the 2023 EITC income limits and maximum possible credit amounts for taxes filed in 2024, based on the number of qualifying children you claim and your filing status.
Qualifying children claimed | Maximum AGI (single/head of household/qualified widower) for 2023 | Maximum AGI (married) for 2023 | Maximum possible credit for 2023 |
No children | $17,640 | $24,210 | $600 |
One child | $46,560 | $53,120 | $3,995 |
Two children | $52,918 | $59,478 | $6,604 |
Three children or more | $56,838 | $63,398 | $7,430 |
You will not be able to claim the EITC on your tax return if your AGI exceeds the maximum income limit determined by the number of children you claim and your filing status. For example, for the 2023 tax year, married couples with three or more children can’t have a combined AGI of over $63,398 to qualify.
Some of the other 2023 EITC requirements are:
Being a U.S. citizen or resident alien for at least 6 months of the year
Having a valid Social Security number
Not filing Form 2555, which is for reporting foreign earned income
Having no more than $11,000 in investment income. This number increases to $11,600 for your 2024 tax return, which can be filed in 2025.
There are special EITC qualifying rules for taxpayers and family members with disabilities.
A taxpayer may claim their adult offspring as a qualifying child for the EITC. But the qualifying child must meet two requirements:
Have a valid Social Security number
What is a permanent and total disability?
In order to meet the permanent and total disability requirement, a person cannot take part in a substantial gainful activity (SGA). An SGA generates earnings that exceed the amount set by the Social Security Act. That amount adjusts each year for inflation and is also determined by whether the individual is blind.
The table below shows the 2023 and 2024 monthly SGA amounts — meaning, the earned income limits — based on disability type.
Year | Blind | Non-blind disabled |
2023 | $2,460 | $1,470 |
2024 | $2,590 | $1,550 |
In order for it to be considered a total and permanent disability, a healthcare professional must also determine if the disability meets at least one of these criteria:
It has been consistent for a year.
It will be consistent for at least a year.
It can lead to death.
If your child’s healthcare professional determines that your child has a permanent and total disability, they will provide a letter to that effect. Information about your child will go on Schedule EIC of your 1040 tax return.
The same requirements apply to individuals with a disability who claim the EITC on their tax return.
Do disability payments qualify as earned income?
While you can qualify for the EITC if you are receiving disability payments, not all payments qualify as earned income.
Whether your disability payments qualify as earned income depends on two things:
The type of disability payments you receive
Your age when you start receiving disability payments
For example, disability retirement benefits count as earned income only until you reach retirement age. Check with your retirement plan to find out what the minimum retirement age is. Typically, it’s the age at which you would receive retirement benefits without a disability.
Disability insurance payments are treated similarly to disability retirement benefits. They qualify as earned income if your employer paid the insurance premiums. However, they do not qualify if you made the payments for the insurance premiums directly. Your W-2 tax form may show the amount you paid in insurance premiums if there is a code “J” in box 12.
Disability benefits that do not qualify as earned income are:
Benefits of claiming the earned income tax credit
Whether you receive disability payments or not, the EITC can help:
Increase your refund if you don’t owe any taxes at the end of the year
Reduce how much you need to pay the IRS if you have a tax bill
Provide a short-term safety net if you are on fixed income
Receiving the earned income credit will not affect your eligibility for government assistance. Neither the Supplemental Nutrition Assistance Program (SNAP) nor Medicaid considers a refund to be income.
The bottom line
The earned income tax credit (EITC) is designed to help individuals and families with low-to-moderate income. Individuals receiving disability payments can also receive this credit or be claimed by a family member on their tax return. Whether it is an adult living independently or being cared for by their family, this financial help will not affect government benefits.
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References
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Internal Revenue Service. (2023). Internal revenue bulletin: 2023-48.
Internal Revenue Service. (2024). About Form 1040, U.S. individual income tax return.
Internal Revenue Service. (2024). About Form 2555, foreign earned income.
Internal Revenue Service. (2024). About Form W-2, wage and tax statement.
Internal Revenue Service. (2024). About Schedule EIC (Form 1040 or 1040-SR), earned income credit.
Internal Revenue Service. (2024). Definition of adjusted gross income.
Internal Revenue Service. (2024). Disability and the earned income tax credit (EITC).
Internal Revenue Service. (2024). Earned income and earned income tax credit (EITC) tables.
Internal Revenue Service. (2024). Earned income tax credit (EITC).
Internal Revenue Service. (2024). Income limits and range of EITC.
Internal Revenue Service. (2024). Is the long-term disability I am receiving considered taxable?
Internal Revenue Service. (2024). Publication 525 (2023), taxable and nontaxable income.
Internal Revenue Service. (2024). Qualifying child rules.
Internal Revenue Service. (2024). Statistics for tax returns with the earned income tax credit (EITC).
Internal Revenue Service. (2024). Who qualifies for the earned income tax credit (EITC).
Tax Policy Center. (2024). Do all people eligible for the EITC participate?
U.S. Social Security Administration. (n.d.). Compilation of the Social Security laws.
U.S. Social Security Administration. (n.d.). Social Security number and card.
U.S. Social Security Administration. (n.d.). Substantial gainful activity.
This article is solely for informational purposes. This article is not professional advice concerning insurance, financial, accounting, tax, or legal matters. All content herein is provided “as is” without any representations or warranties, express or implied. Always consult an appropriate professional when you have specific questions about any insurance, financial, or legal matter.
