Income: Tax Benefits for People With Disabilities (2025 IRS Guide)

This guide covers “Income” within tax benefits for people with disabilities. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 907 (2025), Tax Highlights for Persons With Disabilities, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Income

All income is taxable unless it is specifically excluded by law. The following discussions highlight some taxable and nontaxable income items. For information about distributions from an ABLE account, see ABLE Account, later.

Dependent Care Benefits

Dependent care benefits include the following.

• Amounts your employer paid directly to you or your care provider for the care of your qualifying person(s) while you worked.

• The fair market value (FMV) of care in a daycare facility provided or sponsored by your employer.

• Pre-tax contributions you made under a dependent care flexible spending arrangement.

Exclusion or deduction.

If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Your employer can tell you whether your benefit plan qualifies. To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses.

If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee. Therefore, you wouldn’t get an exclusion from wages. Instead, you would get a deduction on one of the following Form 1040 or 1040-SR schedules: Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. To claim the deduction, you must use Form 2441.

The amount you can exclude or deduct is limited to the smallest of the following.

1. The total amount of dependent care benefits you received during the year.

2. The total amount of qualified expenses you incurred during the year.

3. Your earned income.

4. Your spouse's earned income.

Statement for employee.

Your employer must give you a Form W-2 (or similar statement) showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Your employer will also include any dependent care benefits over $5,000 for 2025 in your wages shown on your Form W-2 in box 1.

Qualifying person(s).

A qualifying person is any of the following.

• A qualifying child who is under age 13 whom you can claim as a dependent. If the child turned 13 during the year, the child is a qualifying person for the part of the year they were under age 13.

• Your disabled spouse who isn’t physically or mentally able to care for themselves.

• Any disabled person who wasn’t physically or mentally able to care for themselves whom you can claim as a dependent (or could claim as a dependent except that the person had gross income of $5,200 or more or filed a joint return).

• Any disabled person who wasn’t physically or mentally able to care for themselves whom you could claim as a dependent except that you (or your spouse if filing jointly) could be claimed as a dependent on another taxpayer's 2025 return.

For information about excluding benefits on Form 1040, Form 1040-SR, or Form 1040-NR, see Form 2441 and its instructions.

Social Security and Railroad Retirement Benefits

my Social Security account.

Social security beneficiaries may quickly and easily obtain the following information from the Social Security Administration's website with a my Social Security account.

• Keep track of your earnings and verify them every year.

• Get an estimate of your future benefits if you are still working.

• Get a letter with proof of your benefits if you currently receive them.

• Change your address.

• Start or change your direct deposit.

• Get a replacement Medicare card.

• Get a replacement SSA-1099 or SSA-1042S for the tax season.

For more information and to set up an account, go to SSA.gov/MyAccount.

If you received social security or equivalent tier 1 railroad retirement (RRTA) benefits during the year, part of the amount you received may be taxable.

Are any of your benefits taxable?

If the only income you received during the year was your social security or equivalent tier 1 RRTA benefits, your benefits are generally not taxable.

If you received income during the year in addition to social security or equivalent tier 1 RRTA benefits, part of your benefits may be taxable if all of your other income, including tax-exempt interest, plus half of your benefits are more than:

• $25,000 if you are single, head of household, or qualifying surviving spouse;

• $25,000 if you are married filing separately and lived apart from your spouse for all of 2025;

• $32,000 if you are married filing jointly; or

• $0 if you are married filing separately and lived with your spouse at any time during 2025.

For more information, see the instructions for Form 1040 or 1040-SR, lines 6a and 6b, and Pub. 915, Social Security and Equivalent Railroad Retirement Benefits.

Supplemental Security Income (SSI) payments.

Social security benefits don’t include SSI payments, which aren’t taxable. Don’t include these payments in your income.

Disability Pensions

If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on line 1h of Form 1040 or 1040-SR until you reach minimum retirement age. Minimum retirement age is generally the age at which you can first receive a pension or annuity if you aren’t disabled.

Tip: You may be entitled to a tax credit if you were permanently and totally disabled when you retired. See Pub. 524, Credit for the Elderly or the Disabled.

Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Report the payments on Form 1040 or 1040-SR, lines 5a and 5b. See Pub. 575, Pension and Annuity Income.

Terrorist attacks.

Don’t include in income the disability payments you receive for injuries incurred as a direct result of terrorist attacks directed against the United States (or its allies), whether outside or within the United States. In the case of the September 11 attacks, injuries eligible for coverage by the September 11 Victim Compensation Fund are treated as incurred as a direct result of the attack. However, you must include in your income any amounts that you received that you would have received in retirement had you not become disabled as a result of a terrorist attack. Accordingly, you must include in your income any payments you receive from a 401(k), pension, or other retirement plan to the extent that you would have received the amount at the same or later time regardless of whether you had become disabled.

Tip: Contact the company or agency making these payments if it incorrectly reports your payments as taxable income to the IRS on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to request that it reissue the form to report some or all of these payments as nontaxable income in box 12 (using code J) of Form W-2, or in box 1 of Form 1099-R but not in box 2a. If income taxes are being incorrectly withheld from these payments, you may also submit Form W-4P, Withholding Certificate for Pension or Annuity Payments, to the company or agency to stop the withholding of income taxes from the payments.

Disability payments you receive for injuries not incurred as a direct result of a terrorist attack, or for illnesses or diseases not resulting from an injury incurred as a direct result of a terrorist attack, cannot be excluded from your income under this provision, but may be excludable for other reasons as described in this publication.

Retirement and profit-sharing plans.

If you receive payments from a retirement or profit-sharing plan that doesn’t provide for disability retirement, don’t treat the payments as a disability pension. The payments must be reported as a pension or annuity.

Accrued leave payment.

If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. The payment isn’t a disability payment. Include it in your income in the tax year you receive it.

See Pub. 525, Taxable and Nontaxable Income.

Military and Government Disability Pensions

Generally, you must report disability pensions as income, but don’t include certain military and government disability pensions. See Pub. 525.

VA disability benefits.

Don’t include disability benefits you receive from the Department of Veterans Affairs (VA) in your gross income. If you are a military retiree and don’t receive your disability benefits from the VA, see Pub. 525 for more information.

Don’t include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the VA. These include:

• Education, training, and subsistence allowances;

• Disability compensation and pension payments for disabilities paid to veterans or their families;

• Grants for homes designed for wheelchair living;

• Grants for motor vehicles for veterans who lost their sight or the use of their limbs;

• Veterans' insurance proceeds and dividends paid to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death;

• Interest on insurance dividends left on deposit with the VA;

• Benefits under a dependent-care assistance program;

• The death gratuity paid to a survivor of a member of the U.S. Armed Forces who died after September 10, 2001; or

• Payments made under the VA's compensated work therapy program.

Other Payments

You may receive other payments that are related to your disability. The following payments aren’t taxable.

• Benefit payments from a public welfare fund, such as payments due to blindness.

• Workers' compensation for an occupational sickness or injury if paid under a workers' compensation act or similar law.

• Compensatory (but not punitive) damages for physical injury or physical sickness.

• Disability benefits under a “no-fault” car insurance policy for loss of income or earning capacity as a result of injuries.

• Compensation for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement.

Long-Term Care Insurance

Long-term care insurance contracts are generally treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) are generally excludable from income as amounts received for personal injury or sickness. See Pub. 525.

Accelerated Death Benefits

You can exclude from income accelerated death benefits you receive on the life of an insured individual if certain requirements are met. Accelerated death benefits are amounts received under a life insurance contract before the death of the insured. These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. This exclusion applies only if the insured was a terminally ill individual or a chronically ill individual. See Pub. 525.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 907 (2025), Tax Highlights for Persons With Disabilities: Income — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.