According to the Centers for Disease Control and Prevention (CDC), around 1 in 4 adults in the U.S. live with a disability, and many face increased medical and daily living expenses. Fortunately, the tax code offers a variety of benefits specifically designed to help people with disabilities reduce their tax burden. In this guide, we’ll explore key tax benefits available for people with disabilities, as well as how to take full advantage of them.
How Does the IRS Define Disability?
You are considered to be permanently and totally disabled if your mental or physical condition prevents you from being able to work. A physician must certify that your condition is expected to last for a long period (at least 12 months) or can lead to death.
Tax Credit for the Elderly and Disabled
If you are 65 or older, or a disabled person who is permanently and totally disabled, you may qualify for the Tax Credit for the Elderly or Disabled. This tax credit can provide substantial financial relief, ranging from $3,750 to $7,500 depending on your adjusted gross income (AGI) and Social Security benefits.
Here are the income limits for tax year 2024:
- Single, Head of Household, or Qualifying Surviving Spouse: $17,500 AGI, with a maximum disability income of $5,000.
- Married Filing Jointly (One Spouse Qualifies): $20,000 AGI, with a maximum disability income of $5,000.
- Married Filing Jointly (Both Spouses Qualify): $25,000 AGI, with a maximum disability income of $7,500.
- Married Filing Separately (Living Apart): $12,500 AGI, with a maximum disability income of $3,750.
This credit can be particularly beneficial if your income falls within the applicable thresholds.
ABLE Accounts: A Way to Save for Disability-Related Expenses
Living with a disability can lead to significant medical and living expenses. To help manage these costs, ABLE (Achieving a Better Life Experience) Accounts were created. These accounts help people with disabilities save money for future expenses. These tax-advantaged savings accounts are specifically for people who became disabled before their 26th birthday.
For 2025, you can contribute up to $19,000 to an ABLE account. Distributions from the account are tax-free as long as they are used for qualified disability expenses, which include:
- Education
- Housing
- Transportation
- Assistive technology
- Support devices
- Healthcare
ABLE accounts provide a smart way to save for the future, without the funds affecting eligibility for essential government benefits like Medicaid or Supplemental Security Income (SSI).
Additional Tax Break for Blind Taxpayers
If you are legally blind, you may qualify for a higher standard deduction, which can lead to a larger tax break. You are considered legally blind if:
- You cannot see better than 20/200 in your best eye, even with glasses or contact lenses, or
- Your field of vision is 20 degrees or less.
For tax year 2024, the standard deduction amounts for most filers are:
- Single or Married Filing Separately: $14,600
- Head of Household: $21,900
- Married Filing Jointly or Qualifying Surviving Spouse: $29,200
Additionally, if you are 65 or older or blind, you can claim an additional deduction of:
- Single or Head of Household: $1,950
- Married Filing Jointly or Qualifying Surviving Spouse: $1,550
This extra deduction can provide a significant tax benefit for those who qualify.
Earned Income Tax Credit (EITC) for Disabled Workers
Certain disability payments can count as earned income, helping you qualify for the Earned Income Tax Credit (EITC). For example, disability retirement benefits received before reaching retirement age or employer-paid disability insurance may count as earned income, making you eligible for this refundable credit.
The EITC provides a significant tax break for low- to moderate-income workers, including those with disabilities. The amount you can receive depends on your filing status, number of qualifying children, and your income. The income limits for 2024 are:
- Zero Children: $18,591 (Single, Head of Household) or $25,511 (Married Filing Jointly)
- One Child: $49,084 (Single, Head of Household) or $56,004 (Married Filing Jointly)
- Two Children: $55,768 (Single, Head of Household) or $62,688 (Married Filing Jointly)
- Three or More Children: $59,899 (Single, Head of Household) or $66,819 (Married Filing Jointly)
Your investment income also cannot exceed $11,600. For tax year 2024, the EITC can be worth up to $7,830 with three or more qualifying children.
Child and Dependent Care Credit for Caregivers
Family members play a crucial role in providing care and support for individuals with disabilities, ensuring their safety and well-being. If you pay for a caregiver to look after a loved one with a disability, you may qualify for the Child and Dependent Care Credit. This tax credit helps offset the cost of care for a person who is mentally or physically unable to care for themselves.
The maximum expense limit for care is:
- $3,000 for one qualified individual
- $6,000 for two or more qualified individuals
The tax credit can range from 20% to 35% of the total care expenses, depending on your adjusted gross income (AGI).
Saver’s Credit for Retirement Contributions
The Saver’s Credit is a valuable tax benefit available to eligible individuals contributing to their retirement savings. This credit applies to contributions made to an IRA, employer-sponsored retirement plan, or an ABLE account (if you are the designated beneficiary). It is designed to encourage saving for the future, providing a tax credit that can reduce your tax liability based on your contributions. The credit amount is determined by your adjusted gross income (AGI) and filing status, offering an excellent opportunity to save money while securing your financial future.
Deducting Medical Expenses
People with disabilities can often deduct medical expenses that exceed 7.5% of their AGI if they itemize deductions. Medical expenses that qualify include:
- Hearing aids
- Eyeglasses and contacts
- Artificial limbs
- Wheelchairs
- Service animals
- Special phone equipment for the deaf or hard of hearing
- Qualified long-term care insurance premiums
Additionally, home improvements made for accessibility, such as installing ramps, widening doorways, or adding grab bars, can also be deducted as part of the medical expense deduction.
Impairment-Related Work Expenses
If your disability affects your ability to work, you may be able to claim impairment-related work expenses. These are the costs you incur in order to work, such as hiring an interpreter for a deaf employee or purchasing specialized equipment. Mental illness, for example, may require such expenses due to its impact on emotional and behavioral functioning. These expenses can be deducted as miscellaneous itemized deductions, offering a significant tax break for those who need extra support to remain employed.
Is Disability Income Taxable?
Generally, disability benefits from private insurance policies are taxable if the premiums were paid by your employer or were paid with pre-tax dollars. On the other hand, if you paid the premiums with after-tax dollars, the benefits are usually tax-free. Social Security Disability Insurance (SSDI) benefits may be taxable if your total income exceeds a certain threshold.
Maximize Your Tax Benefits
Navigating tax laws can be challenging, so it’s essential to make sure you’re utilizing all available tax benefits. Filing your taxes with ezTaxReturn can help you claim all eligible credits and deductions. And get your maximum refund, guaranteed.
Conclusion
There are many tax benefits for people with disabilities that can help reduce the financial burden of medical expenses, caregiving, and other disability-related costs. Whether you qualify for credits like the EITC, or deductions like impairment-related work expenses, understanding your eligibility is crucial. Be sure to explore these opportunities to maximize your tax refund and financial security.
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
