Tax Talk 2016 FAQ

Tax Breaks for the Disabled

I’m disabled. What kind of tax breaks do I qualify for?
People with disabilities are eligible for a number of tax breaks. These include tax deductions and credits that can offset some of the costs associated with managing a physical or mental disability. Additionally, certain income is tax free to qualified disabled individuals. If you or someone you know suffers from a disability, take the time to understand how the tax law may help to ease some financial burdens.

I’ve heard that disabled taxpayers can receive income that’s not taxable. Is this true?

Some payments made to taxpayers with disabilities are not taxable. These payments include amounts received under a workers’ compensation act for a job-related illness or injury and veteran’s disability benefits from the government. Other tax-free income includes damages awarded for physical injury or illness; benefits paid under a no-fault car insurance policy for loss of income or earning ability as a result of injuries; and compensation received for permanent loss of the use of some body part or function. Like regular Social Security payments, the taxation of Social Security disability payments is based on the recipient’s income level.

Income received from an accident or health insurance plan for your disability may or may not be taxable depending on who paid for the plan. If your employer footed the bill, your benefits are taxable; if you paid the entire cost, you need not report as income any disability payments from the plan. If both you and your employer shared the cost, you report as income only the amount your employer paid for your disability. Your employer should be able to give you specific details.

As a disabled taxpayer, I have a considerable number of medical expenses. Which of these are deductible?

Medical expenses exceeding 10 percent of a taxpayer’s adjusted gross income (AGI) are deductible (7.5% if you’re 65 or older). In addition to the costs of health insurance, physician fees, hospitals, and prescription drugs, the disabled person can deduct costs related to special equipment such as motorized wheelchairs, hand controls on a car, special telephone equipment, and the cost of a guide dog. Also deductible are expenses for special schools for a physically or mentally handicapped child and for schools that teach skills such as sign language, Braille, or lip reading. 

Certain home improvements removing structural barriers to accommodate a disabled person may also be deducted as medical expenses. Such costs include entrance and exit ramps, widened doorways, lowered kitchen equipment and cabinets, and modifications to bathrooms. The full cost of such structural improvements, regardless of whether or not they increase the home’s value, are added to other medical expenses and the total is deductible to the extent that it exceeds 10 percent of AGI. Capital expenditures for home improvement for medical care reasons are deductible only to the extent the cost of the improvement exceeds any increase in the property’s value.

If you are disabled, you may be able to claim as an employee business expense (rather than as a medical expense subject to the 10 percent AGI floor) certain un-reimbursed impairment-related work expenses necessary to satisfactorily perform your job, as long as they are not used, except incidentally, for personal purposes. For example, an employee confined to a wheelchair that needs someone to accompany him or her on business trips may deduct the person’s travel costs.

Here’s another important point: Although unreimbursed employee business expenses are generally deductible only to the extent that they, together with other miscellaneous expenses, exceed 2 percent of your AGI, this rule is waived for certain impairment-related work expenses.

What about the tax credit for disabled Americans?
If you are either over the age of 65 or under age 65 and retired on permanent and total disability, you may qualify for a tax credit. According to the IRS, you are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. A physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or can be expected to result in death.  You qualify for the credit only if you have taxable disability income.

Qualified taxpayers who, in order to work or look for work, pay someone to care for a spouse or dependent who is physically or mentally unable of self-care, also may be eligible for a tax credit for a portion of the cost paid for such care.

 American Institute of Certified Public Accountants Texas State Board of Public Accountancy