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Disability And Taxes: 10 Facts To Know If Filing As A Disabled Adult

reviewed by Robin T Young
January 7, 2019

With tax season just around the corner, many of us are starting to tally up deductions and tax information for the year. This can be an especially involved process if you’re filing as a disabled person.

There are a number of deductions and credits you may be eligible for, and it can be hard to keep track of them all.

Whether you’ve been on permanent disability for years or you’re filing disabled for the first time, you should be sure you’re getting all the money you’re owed back. Read on to learn more about disability and taxes.

About Permanent Disability

Permanent disability is a tax status that determines if you’ll be eligible to receive tax deductions and credits for the rest of your life. The IRS defines a permanent disability as one that makes a person unable to “engage in any substantial gainful activity because of a physical or mental condition.” You have to have a note from your doctor certifying your disability.

It’s important to know that being able to do things around the house or live independently doesn’t mean you won’t qualify for permanent disability.

The IRS recognizes that you may be able to complete some basic housework without being able to work a steady, regular job. But keep in mind that the IRS does take a look at your level of household activity when they are assessing your qualification for disability status.

Some Disability Payments Aren’t Taxable

One of the first things you should know about disability and taxes is that some disability payments are not taxable. It depends on the cause of your disability. For instance, if you became disabled while serving in the military, those payments are not taxable.

If you receive benefit payments because you are blind or benefits from a car accident in which you weren’t at fault, those payments may also not be taxable. Workers’ comp and payments that you get because of a permanent disfigurement or loss of body function may also fall into this category.

Eligible for a Credit

Even if you do have to pay taxes on your disability payments, you may be eligible for a large tax credit to reduce the amount you owe. The elderly and disabled get credits towards their taxes, especially if they fall into a lower income category. If you make less than $17,500 a year, you qualify for this credit.

This credit also applies to those who were disabled at the time of their retirement. The disability must be permanent and total, and you still have to meet the income requirements.

Evaluate your tax situation

By evaluating your tax situation, you can identify areas where you may be able to reduce your tax burden and make informed decisions about your financial future.

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Deduct Medical Expenses

If you have high medical expenses (not uncommon among the disabled community), you may be able to deduct some of your medical expenses as a personal itemized deduction.

There are a few guidelines you have to meet (surprise, surprise), but this deduction applies to both out-of-pocket medical expenses and health insurance premiums. The catch is the expenses must exceed 10 percent of your adjusted gross income.

So let’s say your adjusted gross income (AGI) is $20,000 a year, and your medical expenses are $3,000 a year. You will be able to deduct the extra $1,000 that exceeds that 10 percent of your AGI from your taxes. But you’ll want to keep careful records of your medical expenses throughout the year so you can do the itemized deduction.

Benefit from an ABLE Account

In 2015, the federal government implemented a tax law that allows disabled people to establish tax-advantaged savings accounts. These are called Achieving a Better Life Experience, or ABLE, accounts. They make it possible for those with disabilities to save money to pay for their expenses without having to worry about losing their disability eligibility.

As with all things taxes, there are guidelines that regulate these accounts. Until this year, the maximum you could contribute to these accounts was $14,000 a year. As of 2018, however, you can contribute additional funds, up to a specified amount.

High Standard Deduction

Certain disabilities may qualify for a higher standard deduction than most. Specifically, if you are blind, you may be able to claim this deduction. You’ll need to research the eligibility requirements carefully because that eligibility can depend on your age, your blindness status, and whether another taxpayer can claim you as an exemption.

Deduct Work Expenses

Because a disability affects your ability to work in a standard work setting, you might have to pay for some special services that allow you to work a regular job. For example, you may need to work with a sign language interpreter or a guide dog, or you might need an aid for a physical disability.

These services can be expensive.

The IRS allows you to deduct workplace expenses related to your disability from your taxes. These are different than the personal itemized deductions for medical expenses, so be sure to track them separately.

Earned Income Tax Credit

Many people filing for taxes with a disability have low income. In addition to the other tax deductions, you may be eligible for, you may also qualify for an earned income tax credit.

Earned income tax credit (or EITC) is a credit that helps people with low incomes make ends meet around tax season. If your income is low enough and you are between the ages of 25 and 65, you might qualify for this credit. The qualifying income amount varies depending on how many children you have.

Learn More About Disability and Taxes

Filing taxes as a disabled person can be an involved process, but a little knowledge and preparation can save you a lot of money. Make sure you’re taking advantage of the programs you qualify for, and learn as much as you can about disability and taxes.

If you’d like help navigating this process, visit the rest of our site at Tax Relief Professional. We have articles discussing everything you wanted to know about state and IRS taxes.

Check out our articles about personal taxes today.

Clinton F Wassor

Clinton F. Wasser, holding a Master of Science in Legal Studies of Taxation, brings a wealth of expertise in tax planning and compliance to his writing. With a career rooted in the workings of the tax landscape, Clinton navigates difficulties with finesse. Beyond his professional accomplishments, he generously volunteers his time to educate high school students about the nuances of taxes. As an author, Clinton marries his real-world experience with a passion for simplifying tax concepts. He has found that his technique empowers readers to better understand the world of taxation.
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