The type of tax related to income for retired people and people with disabilities primarily involves Social Security benefits and disability pensions, which are treated as taxable income under certain conditions.
- Social Security Tax: Social Security benefits, which serve as income for many retired and disabled individuals, can be subject to federal income tax. Depending on the recipient's total provisional income, up to 85% of Social Security benefits may be taxed at ordinary income tax rates, while the remainder is tax-free
- Disability Pensions: Disability pensions received from employer plans are generally taxable income. If the individual retired due to disability, these payments must be reported as wages until reaching minimum retirement age; after that, they are taxed as pension or annuity income
- Tax Credits for Disabled and Elderly: There are specific tax credits such as the Credit for the Elderly or the Disabled, which can reduce or eliminate tax liability for eligible individuals who are 65 or older or permanently and totally disabled. This credit applies to taxable disability income and can be claimed on tax returns
- Other Retirement Income Taxes: Besides Social Security and disability pensions, retirees often pay income tax on pensions, withdrawals from traditional IRAs and 401(k)s, and other taxable investment income, all generally taxed as ordinary income
In summary, the income related to Social Security benefits and disability pensions is subject to income tax, with provisions for tax credits to assist disabled and elderly taxpayers. These taxes are typically classified as federal income taxes on ordinary income rather than a distinct "type of tax" exclusively for retired or disabled individuals
