Tax Benefits Available for Disabled Taxpayers

Learn about the financial aid for disabled taxpayers.
Learn about the financial aid for disabled taxpayers
Learn about tax credits.
Understand special medical deductions.

Disabled taxpayers, as well as parents of disabled children, may qualify for several tax credits and other tax benefits. If you or someone listed on your federal tax return has a disability, you may qualify for one or more of the following tax benefits:

Increased Standard Deduction

Disabled taxpayers who are legally blind have been eligible for a standard deduction add-on for more than 35 years, since a change in the law. Thus, for 2024, if you are filing jointly with your blind spouse, you can add an additional $1,550 to your standard deduction of $29,200; if both you and your spouse are blind, the add-on doubles to $3,100. For other filing statuses, the additional amount is $1,950. While being age 65 or older isn’t a disability, it should be noted that there is also an “elderly” add-on to the standard deduction of $1,550 or $1,950, depending on filing status. These add-ons apply only to the taxpayer and spouse, not to dependents.

Exclusions from Gross Income

Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income (i.e., they do not count as taxable). Social Security disability amounts are treated similarly to regular Social Security benefits, with up to 85% potentially taxable based on the recipient’s (and spouse’s, if filing jointly) other income.

Impairment-Related Work Expenses

Individuals with a physical or mental disability may deduct impairment-related expenses paid to allow them to work.

Employees – Although the 2017 tax reform eliminated most miscellaneous itemized deductions through 2025, it retained a deduction for employees who have a physical or mental disability that limits their employment. As a result, they can still deduct the expenses necessary for them to work even when not itemizing deductions.
Self – Self-employed individuals, can deduct impairment-related expenses on Schedule C or F.

Impairment-related work expenses are ordinary, necessary business expenses for attendant care services at the individual’s place of work as well as other expenses in the workplace that are necessary for the individual to be able to work. An example is when a blind taxpayer pays someone to read them work-related documents.

Financially Disabled

Under normal circumstances, one must file a claim for a tax refund within 3 years of the extended due date of the tax return. For instance, the due date for a 2021 tax return was April 18, 2022, marking the start of the 3-year clock. Thus, the IRS will not issue refunds for an amended 2021 or a late-filed original 2021 return submitted to the IRS after April 15, 2025. However, if a taxpayer experiences 'financial disability,' they can suspend the period for claiming a refund.

What does being financially disabled mean? An individual experiences financial disability if a medically determinable physical or mental impairment prevents them from managing their financial affairs for at least 12 months or until death.

For a joint income tax return, only one spouse must be financially disabled for the period to be suspended. However, financial disability does not apply during any period when the individual’s spouse or any other person is authorized to act on the individual’s behalf in financial matters.

Earned Income Tax Credit (EITC)

The EITC is available to taxpayers who are disabled and to the parents of a child with a disability, even when the child’s age would normally prevent the child from being a qualifying child. To be eligible for the credit, the taxpayer must receive earned income, which generally means wages or self-employment income. However, if an individual has retired on disability, taxable benefits received under their employer’s disability retirement plan are considered earned income until the individual reaches a minimum retirement age.

If the disability benefits received are nontaxable, as would be the case if the disabled individual paid the premiums for the disability insurance policy from which the benefits come, then the benefits are not considered earned income. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children may qualify for the EITC.

If a taxpayer’s child is disabled, the qualifying child’s age limitation for the EITC is waived.

The EITC does not affect certain public benefits. Any refund received because of the EITC will not be considered income when determining whether a taxpayer is eligible for benefit programs such as Supplemental Security Income and Medicaid.

Child or Dependent Care Credit

Taxpayers who pay someone to come to their home and care for their dependent or disabled spouse may be entitled to claim this credit. For children, this credit is usually limited to the care expenses paid only until age 13, but there is no age limit for children unable to care for themselves.

Special Medical Deductions When Claiming Itemized Deductions

In addition to conventional medical deductions, the tax code provides special medical deductions related to Disabled taxpayers and dependents. They include:

Equipment and Home Improvement Expenses: Amounts paid for special equipment or improvements installed in the home may be included as medical expenses deductible as part of itemized deductions, if their main purpose is medical care for the taxpayer, the spouse, or a dependent. Examples of the many eligible home improvement expenses include constructing entrance or exit ramps, widening doorways and hallways, and installing railings and support bars in a bathroom. The cost of permanent improvements that increase the value of the property may only be partly included as a medical expense.
Learning Disability: Tuition paid to a special school for a child with severe learning disabilities caused by mental or physical impairments, including nervous system disorders, can be included as medical expenses eligible for the medical deduction when itemizing deductions. A doctor must recommend that the child attend the school. Fees for the child’s tutoring recommended by a doctor and given by a teacher who is specially trained and qualified to work with children who have severe learning disabilities might also be included.
Drug Addiction: Amounts paid by a taxpayer to maintain a dependent, themselves or their spouse in a therapeutic center for drug addicts, including the cost of meals and lodging, are included as medical expenses for itemized deduction purposes.

Other Medical Expenses

Here are some other medical expenses that apply to individuals with disabilities:

The cost of Braille books and magazines exceeds the price of regular printed editions.
The price of a wheelchair is used mainly for the relief of sickness or disability, not just to provide transportation to and from work, including the cost of operating and maintaining the wheelchair.
Cost and care of a guide dog or other animal aiding a person with a physical disability.
Cost of artificial limbs and hearing aids.

Exclusion of Qualified Medicaid Waiver Payments

Payments made to care providers caring for related individuals in the provider’s home are excluded from the care provider’s income if they meet certain requirements to be considered foster care payments. Even so, the nontaxable income may qualify as earned income for purposes of the care provider claiming the earned income tax credit. Qualified foster care payments are amounts paid under a state’s foster care program (or political subdivision of a state or a qualified foster care placement agency).

ABLE Accounts

Achieving a Better Life Experience (ABLE) accounts provide a way for individuals and families to contribute and save to support individuals with disabilities in maintaining their health, independence, and quality of life.

Federal law authorizes states to establish and operate ABLE programs. These programs allow any eligible state resident – someone who became severely disabled before turning 26 – to set up an ABLE account, and they would generally be the only person who could take distributions from the account. Beginning for years after 2025, the eligibility age increases to 46. ABLE accounts are very similar in function to Sec. 529 plans that are designed for saving for education expenses. The main purpose of ABLE accounts is to shelter assets from the means testing required by government benefit programs.

Individuals can contribute to ABLE accounts, subject to per-account gift tax limitations (maximum $$18,000 for 2024, up from $17,000 in 2023). For years 2018 through 2025, beneficiaries of ABLE accounts who are working individuals are allowed to contribute limited additional amounts to their ABLE accounts, and they may also be eligible for the nonrefundable saver’s credit.

Disabled individuals receive tax-free distributions if they use the funds for qualified expenses.

For more information on these tax benefits available to Disabled taxpayers or dependents, request a consultation with a Fiducial Advisor at our office locations.

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