Is There a Tax Deduction for Being Disabled?

Navigating the tax landscape can be complex, especially when considering how a disability might impact financial obligations. There isn’t a single, direct tax deduction simply for “being disabled” under federal tax law. Instead, tax benefits for individuals with disabilities are generally available through specific provisions that address disability-related expenses, offer tax credits to reduce tax liability, or provide specialized tax-advantaged savings opportunities. These mechanisms aim to alleviate some of the financial burdens associated with living with a disability.

Deductible Medical Expenses

Taxpayers may be able to deduct eligible medical expenses, including those related to a disability, as an itemized deduction on their federal income tax return. The IRS defines medical expenses as payments for the diagnosis, cure, treatment, or prevention of disease, or for treatments affecting any body function. These costs must primarily alleviate or prevent a physical or mental defect or illness, rather than merely benefiting general health.

Disability-related medical expenses can include:
Specialized equipment, such as wheelchairs, prosthetics, or hearing aids.
Modifications to a home for medical care, like adding exit ramps or widening doorways.
Costs for service animals, including their purchase, training, and veterinary care.
Payments for special education for learning disabilities, if the primary reason is medical care.
Transportation costs for medical appointments.
Prescribed medications.
Certain qualified long-term care services.

To qualify for this deduction, your total unreimbursed medical expenses must exceed 7.5% of your Adjusted Gross Income (AGI). For instance, if your AGI is $50,000, only medical expenses over $3,750 would be deductible. The deduction is claimed by itemizing deductions on Schedule A (Form 1040), rather than taking the standard deduction.

Maintaining meticulous records is important for claiming medical expense deductions. Taxpayers should keep detailed receipts, invoices, and any documentation of medical necessity for all claimed expenses. These records substantiate the expenses in case of an IRS inquiry and support the accuracy of the deduction claimed.

Credit for the Elderly or the Disabled

Certain individuals may qualify for a tax credit specifically designed for the elderly or the disabled. A tax credit directly reduces the amount of tax owed, dollar-for-dollar, unlike a deduction that lowers taxable income.

To be eligible for the “disabled” portion of this credit, an individual must be under age 65 at the end of the tax year and retired on permanent and total disability. The individual must also have received taxable disability income during the year. Permanent and total disability means the individual cannot engage in any substantial gainful activity due to a physical or mental condition, and a physician must certify that the condition has lasted or can be expected to last continuously for at least 12 months, or that it can lead to death.

Eligibility for the credit also depends on meeting specific income limitations, encompassing Adjusted Gross Income (AGI) and non-taxable income like Social Security. For a single filer, the credit may not be claimed if AGI is $17,500 or more, or if non-taxable Social Security and other non-taxable income is $5,000 or more. For married couples filing jointly where both qualify, the AGI limit is $25,000 and the non-taxable income limit is $7,500.

The credit amount is calculated based on an initial base amount, which varies by filing status and eligibility. This base amount is then reduced by certain types of non-taxable income and a portion of the taxpayer’s AGI that exceeds specific thresholds. Taxpayers claim this credit by attaching Schedule R (Form 1040) to their tax return. This credit is nonrefundable; it can reduce your tax liability to zero, but it will not result in a refund if the credit amount exceeds the tax you owe.

Tax-Advantaged Savings Through ABLE Accounts

Achieving a Better Life Experience (ABLE) accounts are a tax-advantaged savings tool for individuals with disabilities. These accounts allow eligible individuals to save money without jeopardizing their eligibility for certain means-tested government benefits, such as Supplemental Security Income (SSI) and Medicaid.

To be eligible for an ABLE account, an individual must have had the onset of their disability before age 26. They must also meet the Social Security Administration’s definition of disability, or have a disability certification from a physician. While the disability must have occurred by age 26, the account owner can be any age when the account is opened. Each eligible individual is limited to holding only one ABLE account.

Anyone can contribute to an ABLE account, including the account owner, family members, and friends. The total annual contributions from all sources are limited to the annual gift tax exclusion amount, which is $18,000 for 2024 and $19,000 for 2025. For working account owners who do not participate in an employer-sponsored retirement plan, an additional contribution may be made up to the lesser of their annual compensation or the federal poverty line for a one-person household.

ABLE accounts offer tax-advantaged growth. Earnings within the account grow tax-free, and qualified withdrawals for disability-related expenses are also tax-free. Qualified disability expenses include:
Housing
Education
Transportation
Employment training and support
Assistive technology
Health, prevention, and wellness
Personal support services

ABLE accounts are offered through state-sponsored programs, with many allowing online account opening. Funds in an ABLE account, up to $100,000, are disregarded when determining eligibility for Supplemental Security Income (SSI) benefits. Funds in an ABLE account do not impact Medicaid eligibility. However, if funds are withdrawn for non-qualified expenses, the earnings portion may be subject to income tax and a 10% penalty.