Federal income tax significant events, Part 5 – Disabilities

This article is the fifth in a continuing series about significant life events that have an impact on your federal income tax return filed with the Internal Revenue Service (IRS).  The topic of this article is disabilities and the elderly.  Further reading about the areas covered in this blog is available on the IRS’s web site.

If you are disabled or become disabled anytime during the tax year or are over the age of 65, you may qualify for certain tax deductions, income exclusions, and tax credits.

Income

Normally, all income is taxable.  However, the tax law excludes certain income related to having a disability or the elderly:

  • Dependent care benefits provided by your employer may be excluded from your income.  Dependent care benefits can include money paid by your employer to a worker for the care of someone while you work, daycare provided by your employer, and pre-tax money contributed to a flexible spending account for dependent care.
  • Retirement benefits related to social security and railroad benefits are fully excluded from taxation if that is the only income you received during the year, whereas some of these benefits may be taxable depending on how much other income you earn.
  • Workers compensation and some damages related to an injury
  • Compensation for permanent bodily damage or disfigurement
  • Accelerated death benefits related to a life insurance policy

Benefits stemming from a disability pension are taxable, except for those benefits stemming from disability pensions related to the military or government.

Itemized Deductions

All persons filing federal income tax can claim the applicable standard deduction or certain itemized deductions.  For those with a disability, the following itemized deductions are more likely to be applicable:

  • Medical expenses above 7.5% of your adjusted gross income that are related to the prevention, diagnosis, and treatment of a disease or illness
  • Impairment-related expenses necessary for you to work

Tax Credits

If you have a disability or care for someone who is disabled, you may be able to claim one or more of the following tax credits:

  • Up to 35% of the expenses related to caring for someone who is unable to care for themselves
  • Credit for the elderly if you are over age 65 or under age 65 but permanently or totally disabled
  • Earned income credit if your income is below a certain amount

Household Employees

If you have someone who works in your home and you control the work they perform, you have to pay employment taxes on the amount you pay the worker.

Business Tax Incentives

If you own a business, certain expense related to those with disabilities or the elderly are deductible:

  • Costs related to making a business more accessible to those who are disabled or the elderly
  • Disabled access credit related to complying with the Americans With Disabilities Act of 1990
  • Credit for hiring those with certain disabilities that otherwise make it difficult for them to obtain employment

 

If you are disabled or over the age of 65 and have questions about filing your federal income tax return, you can contact a tax attorney to get assistance with completing your return or answering your questions.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.