The COVID-19 pandemic brought unprecedented financial challenges, leading the U.S. government to issue several rounds of Economic Impact Payments (EIPs), commonly known as stimulus checks. For many Americans, these payments provided crucial relief. However, for individuals living with disabilities, particularly those who have received a disability settlement, questions often arose about eligibility, how these payments interacted with existing benefits, and whether a lump sum settlement could impact their right to receive these funds.
This comprehensive guide aims to demystify the intersection of disability settlements and stimulus checks, providing clarity on how eligibility was determined and what steps you can take if you believe you missed out on a payment.
Understanding the Stimulus Checks: A Brief Overview
Before diving into the specifics of disability settlements, it’s essential to understand the general framework of the three main rounds of stimulus checks issued by the IRS:
- CARES Act (EIP 1 – Spring 2020): Up to $1,200 per eligible adult, plus $500 per qualifying child.
- Consolidated Appropriations Act (EIP 2 – Winter 2020/2021): Up to $600 per eligible adult, plus $600 per qualifying child.
- American Rescue Plan (EIP 3 – Spring 2021): Up to $1,400 per eligible adult, plus $1,400 per qualifying child.
Key Eligibility Criteria (General):
- Valid Social Security Number (SSN): Generally required for the taxpayer, spouse, and any qualifying children.
- Not a Dependent: You could not be claimed as a dependent on someone else’s tax return.
- Adjusted Gross Income (AGI) Thresholds: Payments were phased out for individuals and couples above certain AGI levels (e.g., $75,000 for individuals, $150,000 for married filing jointly). Your AGI was typically based on your most recently filed tax return (2018 or 2019 for EIP1, 2019 or 2020 for EIP2, and 2019 or 2020 for EIP3).
- Residency: Generally, U.S. residents.
For many who receive disability benefits, especially those on Supplemental Security Income (SSI), they might not typically file tax returns because their income falls below the filing threshold. Recognizing this, the IRS worked with the Social Security Administration (SSA) to automatically send payments to many SSI and SSDI recipients.
The Disability Settlement Factor: Income vs. Resource
This is the most crucial point of confusion for many individuals with disability settlements.
The Short Answer: A disability settlement, whether from a personal injury claim, workers’ compensation, or a structured settlement for a long-term disability, is generally NOT considered taxable income for the purpose of determining your Adjusted Gross Income (AGI) for stimulus check eligibility.
Why this distinction matters:
- Adjusted Gross Income (AGI): Stimulus check eligibility was primarily based on your AGI. AGI includes taxable income sources like wages, salaries, taxable interest, dividends, capital gains, and taxable portions of pensions or Social Security benefits.
- Disability Settlements are Typically Tax-Free (Non-Taxable Income):
- Personal Injury Settlements: Generally tax-free if they relate to physical injuries or sickness.
- Workers’ Compensation: Typically tax-free if received under a workers’ compensation act or statute for an occupational injury or illness.
- Long-Term Disability Settlements: If you paid the premiums for your long-term disability insurance with after-tax dollars, the benefits you receive are generally tax-free. If your employer paid the premiums or if you paid them with pre-tax dollars, the benefits might be taxable. However, even if taxable, this would be ongoing income, not a one-time settlement that would suddenly inflate your AGI for a single year to an disqualifying level unless it was exceptionally large and structured as taxable income.
What a Disability Settlement IS Considered (for other purposes):
While not generally taxable income, a lump-sum disability settlement is typically considered an asset or resource by programs like Supplemental Security Income (SSI) and Medicaid. This is a critical distinction that can affect your continued eligibility for these means-tested benefits. However, for the stimulus checks, which were not means-tested based on assets, this usually wasn’t an issue.
In summary: Because your disability settlement was likely non-taxable, it would not have inflated your AGI to a point that would disqualify you from receiving a stimulus check. Your eligibility would still depend on your other sources of taxable income (if any) and your filing status.
How Your Stimulus Eligibility Was Determined with a Disability Settlement
Given that your settlement likely didn’t affect your AGI, your eligibility for stimulus checks would have been determined in one of the following ways:
If You Filed a Tax Return:
- The IRS would have used your most recently filed tax return (2018, 2019, or 2020, depending on the EIP round) to determine your AGI and dependent status.
- If your AGI was below the threshold, and you met other criteria, you would have received the payment via direct deposit (if banking info was on file) or by mail.
- Even if you received a disability settlement, if it wasn’t reported as taxable income on your return, it wouldn’t have affected this calculation.
If You Did NOT File a Tax Return (Common for SSI/SSDI Recipients):
- For many individuals who primarily receive Social Security (SSDI) or Supplemental Security Income (SSI), they are not required to file tax returns because their income is below the filing threshold.
- Automatic Payments: The IRS worked with the Social Security Administration (SSA) to automatically send stimulus payments to most SSI, SSDI, Railroad Retirement, and VA benefit recipients. These payments were often sent in the same manner as their regular benefits (e.g., direct deposit to their bank account or onto a Direct Express card).
- "Non-Filers" Tool: For those who received no federal benefits and didn’t file taxes, the IRS launched a "Non-Filers: Enter Payment Info Here" tool. This allowed individuals to quickly provide the IRS with their basic information (name, address, SSN, bank account) so they could receive their payment. This tool was particularly vital for low-income individuals, including many with disabilities who didn’t typically file taxes.
Steps to Take If You Believe You Missed a Stimulus Payment
Even though the direct distribution of stimulus checks has ended, you might still be able to claim any payments you missed. The primary way to do this now is by claiming the Recovery Rebate Credit on your federal income tax return.
1. Determine Which Payment(s) You Missed:
- Review your financial records, bank statements, and any IRS notices (Notice 1444 for EIP1, Notice 1444-B for EIP2, and Notice 1444-C for EIP3).
- You can also check your IRS online account at IRS.gov/account to see records of payments issued to you.
2. Gather Necessary Information:
- Your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
- The SSN or ITIN for your spouse and any qualifying children.
- Your bank account information for direct deposit (if you want your refund that way).
- Your Adjusted Gross Income (AGI) from your most recent tax return (if you’ve filed before).
- The amount of any stimulus payments you did receive.
3. File a Federal Income Tax Return (Even if You Don’t Usually File):
- This is the key step. The Recovery Rebate Credit is claimed on Form 1040 (U.S. Individual Income Tax Return) or Form 1040-SR (U.S. Tax Return for Seniors).
- You will calculate the amount of the credit you are owed based on your eligibility for each EIP and the amount you’ve already received. The IRS provides worksheets and instructions to help with this.
- For 2020 Missed Payments (EIP1 & EIP2): You would need to file an original or amended 2020 tax return. The deadline for claiming the 2020 Recovery Rebate Credit is generally three years from the tax return due date (typically April 15, 2024, for the 2020 tax year).
- For 2021 Missed Payments (EIP3): You would need to file an original or amended 2021 tax return. The deadline for claiming the 2021 Recovery Rebate Credit is generally three years from the tax return due date (typically April 15, 2025, for the 2021 tax year).
4. How to File:
- Tax Software: Many tax software programs (e.g., TurboTax, H&R Block, FreeTaxUSA) can help you calculate and claim the Recovery Rebate Credit. If your income is below a certain threshold, you might qualify for free tax filing services through IRS Free File.
- IRS.gov: The IRS website has detailed information and resources on the Recovery Rebate Credit.
- Tax Professional: If your situation is complex, or you prefer assistance, a qualified tax professional (e.g., CPA, Enrolled Agent) can help you prepare and file your return.
- Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE): These programs offer free tax help to qualifying individuals, including people with disabilities, and can assist with claiming the Recovery Rebate Credit.
Important Note on Deadlines: While the general deadline for the Recovery Rebate Credit is three years, it’s always best to file as soon as possible. The sooner you file, the sooner you might receive any owed payment.
Special Considerations for Individuals with Disabilities
- SSI vs. SSDI: While both groups generally received automatic payments, SSI recipients, who are means-tested, often benefit more from understanding that the stimulus payments themselves were not counted as income or resources for SSI purposes for 12 months from receipt. This prevented the stimulus from affecting their monthly benefits. SSDI is not means-tested, so the stimulus had no impact on SSDI benefits regardless.
- Representative Payees: If you have a representative payee for your Social Security benefits, your stimulus payment would have been sent to them. The payee is responsible for using the funds for your benefit. They should have communicated with you about the payment.
- ABLE Accounts and Special Needs Trusts (SNTs): If you received a disability settlement and placed it into an ABLE account or a Special Needs Trust to protect your eligibility for means-tested benefits like SSI and Medicaid, this action would not have affected your stimulus check eligibility. The stimulus check was based on your AGI and dependent status, not on your assets or how your assets were structured.
- Homeless Individuals: Eligibility for stimulus checks extended to homeless individuals. The challenge was often receiving the payment without a stable address. Using a trusted mailing address (e.g., a shelter, friend, or family member) or setting up direct deposit was crucial. Filing a tax return to claim the Recovery Rebate Credit is still an option for those who missed out.
- Incarcerated Individuals: Initially, there was confusion, but it was later clarified that incarcerated individuals were eligible for stimulus checks. Payments were often held and released upon their release, or they could be claimed via the Recovery Rebate Credit.
Looking Ahead: Future Stimulus Payments?
As of now, there are no active plans for additional federal stimulus payments. However, the experience of the COVID-19 pandemic has significantly shaped discussions around direct aid. If future economic crises or legislative actions lead to new stimulus programs, the principles discussed in this article would likely remain relevant:
- Eligibility will likely be tied to income (AGI) and dependency status.
- Non-taxable income sources, including most disability settlements, would likely not disqualify you.
- Mechanisms for automatic payments to federal benefit recipients would probably be reinstated.
- A "Recovery Rebate Credit" or similar tax credit mechanism would likely be the primary way to claim missed payments.
Conclusion
Having received a disability settlement should not have been a barrier to receiving your stimulus checks. The key distinction lies in understanding that these settlements are typically considered non-taxable assets, not taxable income that would inflate your Adjusted Gross Income (AGI). Your eligibility for stimulus payments primarily depended on your AGI from other sources (if any), your tax filing status, and whether you were claimed as a dependent.
If you believe you missed out on any of the Economic Impact Payments, the most effective path forward is to claim the Recovery Rebate Credit by filing an original or amended federal income tax return for the relevant year (2020 for EIP1 & EIP2, 2021 for EIP3). Don’t let the complexity deter you; free tax assistance programs and tax software are available to help you navigate this process. By taking the right steps, you can still claim the financial relief you were entitled to.
Disclaimer: This article provides general information and is not intended as tax or legal advice. Tax laws are complex and can change. It is always recommended to consult with a qualified tax professional or financial advisor for personalized advice regarding your specific situation.