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The federal government offers tax programs for people with disabilities.Federal
income tax regulations provide certain benefits to people with disabilities, as well as to
those who care for them. These benefits generally can be categorized into three broad
areas: income, itemized deductions, and tax credits.
Income: Items of income excluded from tax and subject to other tax
benefits include the following:
- Dependent Care Assistance: Benefits of up to $5,000 provided under an
employer’s qualified dependent care assistance plan can be excluded from income. The
care must be provided for a dependent under the age of 13 or for a spouse or dependent who
is not capable of self-care.
- Disability Pensions: Generally, any amounts received for disability
through an accident or health insurance plan that is paid for by an employer must be
reported as income. To the extent that the insured paid the disability insurance premium,
however, the proportionate share of the disability income received is not taxable.
- Veterans’ Benefits: Disability benefits received from the
Department of Veterans Affairs (VA) are not included in gross income. If disability
benefits are received from other payers, military retirees may exclude from income amounts
equal to the VA benefits to which they are entitled.
- Other Payments: Other payments related to disability that are not
taxable include: (1) workers’ compensation for an occupational sickness or injury,
(2) damages for physical injury or physical sickness, (3) disability benefits under a
"no-fault" car insurance policy for loss of income or earning capacity as a
result of injuries, and (4) compensation for permanent loss or loss of use of a part or
function of the body, or for permanent disfigurement.
Itemized Deductions: If a taxpayer chooses to itemize deductions, both
medical expenses and impairment-related work expenses may be claimed.
- Medical Expenses: Medical expenses include payments made for the
diagnosis, cure, mitigation, treatment, or prevention of disease or for treatment
affecting any part or function of the body. Only the part of medical and dental expenses
that is more than 7.5 percent of adjusted gross income is deductible. Of interest to the
disabled, medical expenses can include payments for special items and equipment such as
- Artificial limbs, eyeglasses, hearing aids, and wheelchairs.
- Cost and care of a guide dog or other assistance animals.
- Improvements to a home that do not increase its value if the main purpose is medical
care (e.g., constructing entrance or exit ramps).
- Special schools for relieving physical disability, such as schools that teach Braille or
lip reading.
- Impairment-Related Work Expenses: An employee having a physical or
mental disability that functionally limits employment may be able to claim
impairment-related work expenses. These are allowable business expenses for attendant care
at the workplace, and other expenses in connection with the workplace that are necessary
for employment. Impairment-related work expenses are not subject to the two percent of
adjusted gross income limit applicable to employee business expenses.
Tax Credits: Tax credits are available to people with disabilities and
those who care for them. These credits, which are subject to certain tests and/or
limitations, include:
- Child and Dependent Care Credit: Generally, payments to someone to care
for a dependent under age 13, or a spouse or dependent who is not capable of self-care,
are eligible for a tax credit of up to 30 percent of the expenses. Such payments must be
made to permit the taxpayer to work, or look for work.
- Credit for the Elderly or Disabled: A 15 percent credit may be claimed
if a taxpayer retired on disability and was permanently and totally disabled when he or
she retired.
Also, certain tax incentives are available to owners or operators of businesses who
provide assistance to persons with disabilities. Such incentives include:
- Deduction for Costs of Removing Architectural Barriers: These costs
must be incurred for making a facility more accessible to and usable by persons who are
disabled or elderly.
- Disabled Access Credit: This tax credit is available to an eligible
small business that pays or incurs expenses to provide access for persons with
disabilities. The expenses must be incurred to enable the eligible small business to
comply with the Americans with Disabilities Act of 1990.
- Work Opportunity Credit: This is a tax credit for businesses that hire
individuals from targeted groups, including those who have a physical or mental disability
that results in a substantial handicap to employment.
These are some thoughts to consider about tax benefits for the disabled. Your Deloitte & Touche financial advisor also can provide
information and should be consulted before any action is taken.
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