Tax Benefits Available to Taxpayers with Disabilities
Individuals with disabilities and parents of children with disabilities may qualify for a number of tax credits and other tax benefits. Listed below are several tax credits and other available benefits if you or someone listed on your federal tax return has a disability.
Increased Standard Deduction
Since a change in the law more than 35 years ago, taxpayers (or spouses when filing a joint return) who are legally blind have been eligible for a standard deduction add-on. Thus, for 2021, if a taxpayer is filing jointly with a blind spouse, they can add $1,350 to their standard deduction of $25,100; if both spouses are blind, the add-on doubles to $2,700. For other filing statuses, the additional amount is $1,700. In addition, while being age 65 or older isn’t a disability, it should be noted that there is an “elderly” add-on to the standard deduction of $1,350 or $1,700, depending on filing status. These add-ons apply only to the taxpayer and spouse, not to dependents.
Exclusions from Gross Income
Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income (i.e., they are not taxable). Amounts received for Social Security disability are treated the same as regular Social Security benefits, which means that up to 85% of the benefits could be taxable, depending on the amount of the recipient’s (and spouse’s, if filing jointly) other income.
Impairment-Related Work Expenses
Individuals with a physical or mental disability may deduct impairment-related expenses paid to allow them to work.
- Employees – Although the 2017 tax reform eliminated most miscellaneous itemized deductions, it retained the deduction for employees with a physical or mental disability limiting their employment. As a result, they can still deduct the expenses necessary for them to work as an itemized deduction.
- Self-employed – For self-employed, impairment-related expenses are deductible on Schedule C or F.
Impairment-related work expenses are ordinary, necessary business expenses for attendant care services at the individual’s place of work as well as other expenses in the workplace that are necessary for the individual to be able to work.
Earned Income Tax Credit (EITC)
The EITC is available to taxpayers with disabilities and the parents of a child with a disability, even when the child’s age would normally prevent the child from being a qualifying child. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children may qualify for the EITC.
Child or Dependent Care Credit
Taxpayers who pay someone to come to their home and care for their dependent or spouse with a disability may be entitled to claim this credit. For children, this credit is usually limited to the care expenses paid only until age 13, but there is no age limit if the child cannot care for himself/herself.
Special Medical Deductions When Claiming Itemized Deductions
- Impairment-Related Expenses – Amounts paid for special equipment or improvements installed in the home may be included as medical expenses deductible as part of itemized deductions if their main purpose is medical care for the taxpayer, the spouse, or a dependent. The cost of permanent improvements that increase the property's value may only be partly included as a medical expense.
- Learning Disability – Tuition paid to a special school for a child with severe learning disabilities caused by mental or physical impairments, including nervous system disorders, can be included as medical expenses eligible for the medical deduction when itemizing deductions. A doctor must recommend that the child attend the school. Fees for the child’s tutoring recommended by a doctor and given by a specially trained teacher qualified to work with children with severe learning disabilities might also be included.
- Drug Addiction – Amounts paid by a taxpayer to maintain a dependent in a therapeutic center for drug addicts, including the cost of the dependent’s meals and lodging, are included as medical expenses for itemized deduction purposes.
- Other Medical Expenses – Here are some other medical expenses that apply to individuals with disabilities:
- Cost of Braille books and magazines that exceeds the price of regular printed editions.
- Cost of a wheelchair used mainly for the relief of sickness or disability, not just to provide transportation to and from work, including the cost of operating and maintaining the wheelchair.
- Cost and care of a guide dog or other animal aiding a person with a physical disability.
- Cost of artificial limbs and hearing aids.
Qualified ABLE programs provide a way for individuals and families to contribute and save to support individuals with disabilities in maintaining their health, independence, and quality of life.
Federal law authorizes states to establish and operate ABLE programs. Under these programs, an ABLE account may be set up for any eligible state resident – someone who became severely disabled before turning 26 – who would generally be the only person who could take distributions from the account. ABLE accounts are very similar in function to Sec. 529 plans. The primary purpose of ABLE accounts is to shelter assets from the means testing required by government benefit programs.
Individuals can contribute to ABLE accounts, subject to per-account gift tax limitations (maximum $16,000 for 2022, up from $15,000, which it has been for several years). For years 2018 through 2025, working individuals who are beneficiaries of ABLE accounts can contribute limited additional amounts to their ABLE accounts, and these contributions can be eligible for the nonrefundable saver’s credit.
Distributions to the individual with a disability are tax-free if the funds are used for qualified expenses of the disabled individual.
For more information on the benefits available to disabled taxpayers or dependents, please contact RBI member CRAY KAISER.