Taxpayers with disabilities and parents of children with disabilities may qualify for a number of IRS tax credits and benefits. Listed below are several benefits which are available if you or someone else listed on your federal tax return is disabled.
Child or Dependent Care Credit – Taxpayers who pay someone to care for their disabled dependent or spouse, regardless of the spouse’s or dependent’s age, can claim the child or dependent care credit. The credit is based upon the lower-earning spouse’s income. So when a disabled spouse does not work, the disabled spouse is treated as having a monthly income of $250 ($500 if more than one qualifying person was cared for during the year). The expenses used to compute the credit are limited to $3,000 where there is one qualifying person and $6,000 where there are two or more. The credit ranges from 20 to 35% of the expenses based on the taxpayers’ income. The higher the income, the smaller the percentage!
Medical Deductions – In addition to the normal medical expense deductions, a taxpayer may also be able to deduct:
- Nursing Homes – The entire cost of nursing homes and assisted living facilities is deductible as a medical expense, if the primary reason for the individual being there is for medical care or the individual is incapable of self-care. This would include the entire cost of meals and lodging at the facility.
- In-Home Care – As an alternative to nursing homes, many care providers are hiring day help or live-in employees to provide the needed care at home. When this is the case, the services provided by the employees must be allocated between household chores and deductible nursing services. To be deductible, the nursing services need not be provided by a nurse as long as the services are the same services that would normally be provided by a nurse, such as administering medication, bathing, feeding, dressing, etc. If the employee also provides general housekeeping services, then the portion of the employee’s pay attributable to household chores would not be a deductible medical expense. Caution: household employees are subject to certain federal and state payroll taxes.
- Impairment-related Expenses– Amounts paid for special equipment installed in the home or for modifications needed to accommodate a taxpayer’s disabled condition, or that of the spouse or dependents who live with the taxpayer, are generally treated as deductible medical expenses. Any portion of an expense that increases the value of the home would not be deductible. The following are examples of deductible improvements:
- Constructing entrance or exit ramps for the home,
- Widening doorways at entrances or exits to the home,
- Widening or otherwise modifying hallways and interior doorways,
- Installing railings, support bars, or other modifications,
- Lowering or modifying kitchen cabinets and equipment,
- Moving or modifying electrical outlets and fixtures,
- Installing porch lifts and other forms of lifts but generally not elevators,
- Modifying fire alarms, smoke detectors, and other warning systems,
- Modifying stairways,
- Adding handrails or grab bars anywhere (whether or not in bathrooms).
- Education – Expenses that you incur in order to enable your child to compensate for or overcome disabilities or to prepare your child for future normal education or normal living are deductible medical expenses. Thus, any expenses for therapy that helps your child’s adaptation are deductible medical expenses. In addition, the expenses of your child’s schooling at a “special school” for mentally or physically disabled individuals are deductible (including the cost of an ordinary education) if the resources of the school are the reason for your child’s presence and the educational services provided are rendered only as an incident to the medical care provided.
Earned Income Tax Credit – EITC is available to disabled taxpayers as well as to the parents of a child with a disability. If you retired on disability, the taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. 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, but are older than 25 and younger than 65, qualify for EITC! Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
Impairment-related Work Expenses – Employees who have a physical or mental disability limiting their employment may be able to claim business expenses in connection with their workplace. They are ordinary and necessary expenses, including attendant care services (e.g., a blind taxpayer’s use of a reader) at the place of employment, to enable an individual who has a handicap to work. Impairment-related work expenses are itemized deductions but aren’t subject to the 2%-of-AGI floor.
Standard Deduction – Taxpayers who are legally blind are entitled to an extra amount of standard deduction. For 2011, the additional amount is $1,150 for a married individual and $1,450 for others.
Gross Income – Certain disability-related payments, Dept. of Veterans Affairs disability benefits, and Supplemental Security Income are excluded from gross income.
Waiver of Early Pension Plan Withdrawals – Generally, if a taxpayer is under age 59-1/2 and withdraws assets (money or other property) from a qualified plan including traditional IRAs, the taxpayer must pay a 10% additional tax, commonly referred to as the early withdrawal penalty. This tax is 10% of the part of the distribution that the taxpayer was required to include in gross income. If a taxpayer becomes disabled before reaching age 59-1/2, any amounts withdrawn because of the disability are not subject to the 10% additional tax. A taxpayer is considered disabled if the taxpayer can furnish proof that he/she cannot perform any substantial gainful activity because of the physical or mental condition. A physician must determine that the taxpayer’s condition can be expected to result in death, or is expected to be of a long, continued and indefinite duration.
Moving Deduction Qualification Period Waived – One of the qualifications for the job- related moving deduction is that an individual must work in the general area of the new workplace full-time for 39 weeks during the 12-month period right after the move (78 weeks out of a 24-month period for a self-employed individual). These time periods are waived in the case of death or disability.
Credit for the Elderly or Disabled – This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability. However, due to limitations of the credit, only very low-income taxpayers generally qualify for it.
If you have any questions related to these tax benefits, please give this office a call.