If you happen to be disabled, you are automatically entitled to a whole buffet of disability tax credits and deductions depending on the type of taxes you owe to the Federal, State, or Local authorities. If you’re disabled, you are entitled to an array of tax credits and deductions. These could potentially eliminate your income tax liability, but may result in the IRS sending you money.
Disability is a physical or mental disability (blindness or deafness) that limits employment, or a physical or mental impairment (sight or hearing impairment) that limits some major life activities, like performing manual tasks, speaking, breathing, walking, learning, or working. Major tax benefits for the disabled include:
Larger Standard Deduction
A legally blind person could get more standard deductions on the tax return. This standard deduction amount would depend on filing status, if aged over 65 or blind, and if exemption is claimed for you by another taxpayer.
Some Disability Payments Not Taxable
Military service-connected disability payments are not taxable. However disability pension depending upon years of due service is included in one’s income. Other non-taxable disability-related payments include: payments from public welfare fund, payments due to workers’ compensation from Social Security disability benefits, compensatory damages for physical injury from car insurance policy for loss of income or earning capacity or for your permanent disfigurement. A person’s Social Security disability benefits cannot be taxed.
Impairment-Related Work Expenses
If disabled, impairment-related work expenses for care and other disability-related services at work or outside the workplace if needed for your work, are deductible. A blind person deducts cost of employing a reader for work and a deaf person deducts expenses for a sign language interpreter used for work meetings. If qualifying for this particular deduction, then your impairment-related expenses for work are not to be counted for the 7.5% of adjusted gross income limit applicable for deducting medical expenses as a personal itemized deduction.
Credit for the Elderly or Disabled
You are eligible to tax credit if you are permanently and completely disabled at retirement and is for lesser income individuals, as a single disabled person with adjusted gross income exceeding $17,500, is not eligible.
Disabled people can deduct their medical and health expenses as a personal itemized deduction, if they itemize it, too. Eligible expenses take into consideration both premiums for health insurance and your own out-of-pocket expenses not covered by your insurance plan. But, this deduction cannot be more than 7.5% of adjusted total income during 2017-18, or 10% of AGI during 2019 and later.
From 2015 onwards, disabled individuals and families are allowed a special savings account known as the ABLE (Achieving a Better Life Experience) Account enabling disabled people to save money to assist payment for expenses without any effect on eligibility to receive assistance from the government. Disabled individuals or dependants are able to set up one ABLE account which is enabled to receive contributions not exceeding $14,000 into this account each year. Tax Cuts and Jobs Act enhances the total amount contributed to every ABLE account from 2018 to 2025. After the $14,000 annual limit is reached, the disabled individual is able to make additional contributions equal to the lesser of: the individual’s compensation for the year or the federal poverty line limit for a one-person household.