Parents of children with disabilities and people with disabilities are both entitled for a number of income tax incentives. Some of these tax benefits are described in this article.
Federal legislation enables states to provide people with disabilities with accounts that are specifically created and are tax-favored. In order to support people who become blind or seriously disabled before turning 26 and want to maintain their health, independence, and quality of life, qualified ABLE programs give people and families the opportunity to save money and make contributions.
The ABLE programs, which are permitted by federal tax law, are managed by the states. A state with an ABLE account program may give its citizens the choice to open one of these accounts or enter into a partnership with another state that also provides ABLE accounts. An ABLE account can receive contributions up to the annual gift tax exclusion threshold, which is currently $16,000, and dividends are tax-free if used to cover eligible disability expenses.
The beneficiary of the ABLE account (i.e., the disabled person) is permitted to make a maximum extra contribution each year up to 2025 that is equal to the lesser of the beneficiary’s taxable remuneration for the year or
Using the 2021 poverty levels for a one-person household, the 2022 ABLE beneficiary’s payment might be up to $12,880. The prior year’s inflation-adjusted poverty level. Hawaii citizens pay $14,820, and residents of Alaska pay $16,090, respectively.
However, if the beneficiary’s employer makes contributions to a qualified retirement plan, the additional contribution is not permitted.
The beneficiary’s additional contribution is eligible for the non-refundable saver’s tax credit, which can be as much as 50% of the first $2,000 contributed, up to a maximum credit of $1,000, depending on the beneficiary’s actual income.
Disabled Spouse or Dependent Care Credit – Tax credits are offered to people who pay for childcare for kids who are less than 13 at the time the care is delivered. A dependent of any age who is physically or mentally unable to care for themselves and resided with the taxpayer for more than half of the year is also eligible for this benefit. This dependent may be the taxpayer’s spouse or another dependent.
This is also valid for people who would have been considered dependents except for the fact that they filed a joint return with their spouse or earned $4,400 or more in 2022. Low-income taxpayers benefit from the higher percentage of the credit, which ranges from 20% to 35%, whereas taxpayers with an adjusted gross income of $43,000 or more only receive 20% of the credit. The credit’s maximum allowable care costs are $3,000 for one qualified individual and $6,000 for two or more. Be aware that the credit rate and permitted care costs were much greater and the credit was refundable for 2021 only.
Medical Expense Deductions – People with disabilities may have additional special deductible medical expenses in addition to the “regular” medical expenses. To be eligible for a tax benefit, a taxpayer must itemize their deductions on Schedule A and have medical expenses that amount more than 7.5 percent of their AGI. The following costs are eligible: prosthetics
- Prostheses
- Vision Aids – Contact lenses and eyeglasses
- Hearing Aids – Including the costs and repair of special telephone equipment for people who are deaf or hard of hearing
- Wheelchair – Costs and maintenance
- Service Dog – Costs and care of a guide dog or service animal. The IRS has stated that “the costs of buying, training, and maintaining a service animal to assist an individual with mental disabilities may qualify as medical care if the taxpayer can establish that the taxpayer is using the service animal primarily for medical care to alleviate a mental defect or illness and that the taxpayer would not have paid the expenses but for the disease or illness.”
- Transportation – Modifications or special equipment added to vehicles to accommodate a disability
- Impairment-Related Capital Expenses – Capital costs related to impairment If the main objective of the money spent on modifications or special equipment put in the home is to provide medical treatment for the taxpayer, the spouse, or a dependent, the cost of those items may be deducted as medical expenses. A portion of the expenditures of long-term upgrades that raise a property’s value may be deducted as a medical expense. The increase in the property’s value lowers the costs of the improvement. The distinction is a medical outlay.
The full cost of the improvement is counted as a medical expense if it does not raise the value of the property. Certain home modifications performed to suit a taxpayer’s disability, or that of their spouse or dependents who reside with them, typically do not enhance the value of the home; therefore, the costs can be fully deducted as medical expenses. Construction of entrance or exit ramps for the home, expansion of entrance and exit doorways, corridors, and internal doorways, the installation of railings, support bars, or other modifications, and the addition of handrails or grab bars are a few instances of full-cost medical expenses. - Learning Disability – Medical expenses may include tuition payments made to a special school for children with significant learning problems brought on by mental or physical conditions, including illnesses of the nervous system. A physician must endorse the child’s enrollment in the school. If a doctor recommends tutoring, the costs of such tutoring may also be covered. The tutor must be a teacher who has received special training and certification to work with children who have severe learning impairments.
- Special Schooling – Medical care covers the costs of attending a special school created to make up for or overcome a physical impairment so the person is eligible for further education in a regular setting or for a normal way of life. This includes a facility that teaches lip reading or braille. The main benefit of attending the school must be its unique amenities for easing the student’s disability. Included in the definition of medical expenses are the costs of meals and accommodation given by the school, as well as the tuition for regular education incidental to the specific services offered at the institution.
- Nursing Services – The cost of nursing care can be deducted from wages and other payments made. If the services are of a type that nurses typically conduct, a nurse is not required to perform them. For example, giving medication, changing bandages, bathing and grooming the patient are all services related to treating the patient’s condition. These services may be offered at home or in a different type of care facility. In most cases, just the cost of nursing services qualifies as a medical expense. These funds must be split between the time spent providing nursing services and the time spent completing personal and domestic tasks if the attendant also offers these services.
- Impairment-related Work Expenses – An employed person with a physical or mental disability may deduct impairment-related work expenditures for attendant care provided at their place of employment or for other expenses incurred there that enable them to perform their job duties. If they itemize their deductions, individuals with a physical or mental impairment that prevents them from working or significantly restricts one or more major life activities—such as performing manual tasks, walking, speaking, breathing, learning, and working—are eligible to deduct their impairment-related work expenses. These costs are not classified as medical expenses; rather, they are claimed as a miscellaneous itemized deduction on Schedule A.