Tax Guide for People with Disabilities

SSDI, Self-Employment, and the Substantial Gainful Activity Limit

Social Security Disability Insurance (SSDI) benefits continue as long as you meet the Social Security Administration's definition of disability — which includes not engaging in Substantial Gainful Activity (SGA). For 2026, the SGA threshold is approximately $1,620 per month ($19,440 per year) for non-blind individuals and $2,700 per month ($32,400 per year) for blind individuals. If your countable earnings from self-employment exceed the SGA threshold, the SSA may determine that you are no longer disabled, and your SSDI benefits could be terminated.

For self-employed individuals, the SSA evaluates SGA differently than for wage earners. The SSA looks at three tests: (1) Significant services and substantial income — if you provide "significant services" to your business and your net earnings exceed SGA, you are engaged in SGA. Significant services generally means you contribute substantially to the business beyond mere investment. (2) Comparability — whether your work activity is comparable to that of unimpaired individuals in your community engaged in the same or similar business. (3) Worth of work — whether your work is worth the SGA amount in terms of its value to the business, even if net earnings are below SGA.

The critical planning tool is the Trial Work Period (TWP). SSDI recipients get nine trial work months (not necessarily consecutive) within a rolling 60-month window during which they can test their ability to work while receiving full SSDI benefits, regardless of how much they earn. For 2026, a trial work month is triggered when net SE income exceeds approximately $1,110. After the nine trial work months are used, you enter a 36-month Extended Period of Eligibility (EPE) during which benefits are paid for any month your earnings fall below SGA.

Impairment-Related Work Expenses (IRWEs) are deducted from net self-employment earnings before the SGA comparison. If you earn $2,200/month but spend $700/month on disability-related work expenses (attendant care, specialized transportation, medical devices needed for work), your countable earnings for SGA purposes are $1,500 — below the threshold. This distinction can be the difference between keeping and losing your SSDI benefits.

SSDI recipients can earn up to the SGA limit (~$1,620/month for 2026) without jeopardizing benefits. Impairment-related work expenses reduce countable earnings. The Trial Work Period allows nine months of unlimited earnings while receiving full SSDI. (42 USC Section 423(d)(4) (SGA definition); 20 CFR Section 404.1574 (SE SGA evaluation); 20 CFR Section 404.1576 (IRWEs); 20 CFR Section 404.1592 (Trial Work Period))

ABLE Accounts: Tax-Free Savings That Protect Benefits

ABLE accounts (Achieving a Better Life Experience), authorized under IRC Section 529A, are tax-advantaged savings accounts for individuals with disabilities that began before age 26 (raised to age 46 by SECURE 2.0, effective 2026). The accounts function similarly to 529 education savings plans: contributions are not deductible on your federal return, but earnings grow tax-free, and withdrawals used for qualified disability expenses (QDEs) are completely tax-free.

The annual contribution limit for 2026 is $18,000 (aligned with the annual gift tax exclusion). SECURE 2.0 added an additional provision allowing employed ABLE account holders to contribute extra amounts equal to the lesser of their compensation or the federal poverty level ($15,060 for a single individual in the contiguous US for 2025, adjusted annually). This means a self-employed person with an ABLE account earning $38,000 could potentially contribute up to $33,060 in 2026 — though the total cannot exceed the state's 529 lifetime maximum.

The benefits-preservation feature is the primary reason ABLE accounts exist. For means-tested benefits like Supplemental Security Income (SSI), Medicaid, SNAP, and housing assistance, assets above certain thresholds cause benefit reduction or loss. SSI, for example, has an asset limit of $2,000 ($3,000 for couples). ABLE account balances up to $100,000 are excluded from the SSI asset test. Balances above $100,000 suspend (but do not terminate) SSI benefits. ABLE balances do not affect SSDI (which is not means-tested), Medicaid (ABLE balances are excluded regardless of amount), or most other federal benefits.

Qualified Disability Expenses include a broad range: education, housing, transportation, employment training and support, assistive technology, health and wellness, financial management, legal fees, funeral/burial expenses, and basic living expenses. The IRS and state ABLE programs interpret QDEs broadly — the intent is to cover expenses that maintain or improve the quality of life of the account holder.

ABLE accounts allow tax-free savings up to $18,000/year (plus extra for employed individuals). Balances up to $100,000 do not count against SSI asset limits. Withdrawals for qualified disability expenses are tax-free. (IRC Section 529A (ABLE accounts); SECURE 2.0 Section 124 (age increase to 46); SECURE 2.0 Section 126 (employed ABLE contribution increase); 42 USC Section 1382a(b) (SSI asset exclusion for ABLE))

Medical Expense Deduction and Impairment-Related Work Expenses

The medical expense deduction under IRC Section 213 allows taxpayers who itemize to deduct unreimbursed medical expenses that exceed 7.5% of Adjusted Gross Income. For self-employed people with disabilities who have significant medical costs, this can be a substantial deduction — but the 7.5% floor means the first portion of medical expenses provides no tax benefit.

For example, a self-employed person with $38,000 AGI has a 7.5% floor of $2,850. If their unreimbursed medical expenses total $8,000, only $5,150 ($8,000 - $2,850) is deductible. They must also itemize rather than take the standard deduction, which means their total itemized deductions (medical + state/local taxes + mortgage interest + charitable giving) must exceed $16,100 (single) to benefit. For many self-employed individuals with disabilities, medical expenses alone can exceed the standard deduction, making itemization worthwhile.

Impairment-Related Work Expenses (IRWEs) receive better treatment. Under IRC Section 67(d) (as modified by the regulations), IRWEs are deductible as business expenses on Schedule C — not as itemized medical expenses — and are therefore NOT subject to the 7.5% AGI floor. IRWEs are expenses for services or items that you need because of your impairment in order to work. Examples include: attendant care services at work, specialized transportation to and from work, modifications to your vehicle for work use, wheelchair maintenance, prescription drugs needed to enable work, service animal costs related to work, and specialized equipment or technology.

The distinction between a medical expense and an IRWE depends on whether the expense is necessary specifically to enable work. A wheelchair used at home and at work is a medical expense. The cost of a specialized wheelchair attachment that allows you to reach a work desk is an IRWE. Hearing aids used generally are medical expenses; a specialized phone amplifier for business calls is an IRWE. When in doubt, document the work-related necessity of the expense, as the IRS may challenge the IRWE classification.

Note: there is no federal "disability tax credit" in the US. The Disability Tax Credit (DTC) is a Canadian provision. The Credit for the Elderly or Disabled (Schedule R) exists but has extremely low AGI thresholds ($17,500 single) and provides a maximum credit of only $1,125 — most working self-employed people exceed the income limits.

Medical expenses above 7.5% of AGI are deductible if itemizing. Impairment-Related Work Expenses bypass the 7.5% floor and are deducted as business expenses on Schedule C. (IRC Section 213(a) (medical expense deduction, 7.5% floor); IRC Section 67(d) (IRWE treatment); Treas. Reg. 1.67-1T(a)(1)(iv); 20 CFR Section 404.1576 (SSA definition of IRWEs))

SSI, Medicaid, and the Earned Income Interaction

Supplemental Security Income (SSI) is a means-tested benefit (unlike SSDI, which is based on work history). SSI has both income and asset tests. The federal SSI benefit rate for 2026 is approximately $967/month for an individual. Earned income (including net self-employment income) reduces SSI benefits, but the reduction formula includes exclusions that allow you to keep some earnings.

The SSI earned income formula works as follows: the SSA excludes the first $65 of earned income per month, then counts only half of the remaining earned income. So if your net SE income is $1,200/month, the countable earned income is ($1,200 - $65) / 2 = $567.50. This reduces your SSI benefit by $567.50, from $967 to approximately $399.50. You still come out ahead: $1,200 in earnings + $399.50 in SSI = $1,599.50 total, versus $967 with no earnings. Additionally, IRWEs are subtracted from earnings before the SSI calculation, which further protects your benefit.

For Medicaid — which most SSI recipients receive automatically — the interaction is more complex. Under Section 1619(b) of the Social Security Act, you can continue Medicaid coverage even if your earnings are high enough to eliminate your SSI cash benefit, as long as you (1) continue to have a disabling condition, (2) need Medicaid in order to work, (3) cannot afford equivalent private coverage, and (4) meet the state's 1619(b) threshold (which varies by state and ranges from approximately $30,000 to over $80,000 in annual earnings). This is one of the most important work incentives in the disability benefits system — it ensures that earning more does not cost you your healthcare.

Plan to Achieve Self-Support (PASS) is another SSI work incentive that allows you to set aside income and resources toward a work goal (such as starting a business). Income and assets set aside under an approved PASS plan are excluded from both the SSI income and asset tests. A PASS plan must be approved by the SSA and must describe a specific occupational goal, the steps to achieve it, and a timeline. For self-employed individuals with disabilities, a PASS plan can fund business startup costs while preserving SSI eligibility during the launch period.

SSI reduces benefits by $1 for every $2 of earned income above $65/month. Medicaid continues under Section 1619(b) even if earnings eliminate SSI cash benefits. PASS plans exclude set-aside income from SSI calculations. (42 USC Section 1382a(b)(4) (SSI earned income exclusion); 42 USC Section 1382h(b) (Section 1619(b) continued Medicaid); 20 CFR Section 416.1226 (PASS plans))