What Are the Tax Credits for a Disabled Person?

Tax benefits can provide valuable financial relief for individuals living with disabilities and their families. Navigating the tax code can be complex, but understanding specific credits and deductions can significantly reduce a tax liability. This article clarifies available tax benefits, guiding taxpayers through definitions, eligibility criteria, and claiming processes.

Understanding Disability for Tax Purposes

The Internal Revenue Service (IRS) has specific criteria for defining disability for tax purposes. A person is considered “permanently and totally disabled” if they cannot engage in any substantial gainful activity due to a physical or mental condition. A qualified physician must certify this condition.

The physician must determine that the condition has lasted or can be expected to last continuously for at least a year, or that it can be expected to result in death. Substantial gainful activity refers to performing significant duties for pay or profit. Work done to care for oneself or one’s home, or unpaid work on hobbies, typically does not count as substantial gainful activity. Medical evidence supporting the disability is crucial.

Key Tax Credits for Disabled Individuals

Several tax credits and deductions can benefit disabled individuals or their caregivers. These provisions recognize the additional expenses and circumstances often associated with disability.

The Credit for the Elderly or the Disabled (CED) assists individuals who are aged or have a permanent and total disability. This nonrefundable credit can reduce the amount of tax owed.

The Earned Income Tax Credit (EITC) can provide a significant refundable credit for low-to-moderate income workers, including those with disabilities. Disability status can affect eligibility, such as waiving age limits for qualifying children.

The Child Tax Credit (CTC) and the Credit for Other Dependents can also provide financial relief for families. Having a qualifying child or other dependent with a disability may impact eligibility or the amount of these credits. Additionally, unreimbursed medical expenses, including those related to disability, can be deducted if they exceed a certain percentage of adjusted gross income. This deduction offers a way to reduce taxable income based on significant healthcare costs.

Eligibility Requirements for Each Credit

Each tax benefit has specific criteria that must be met to qualify. For the Credit for the Elderly or the Disabled, taxpayers must generally be age 65 or older by the end of the tax year, or be under age 65 and retired on permanent and total disability. If under 65, they must have received taxable disability income and not have reached their employer’s mandatory retirement age by January 1 of the prior year. There are also adjusted gross income (AGI) and nontaxable income limits, which vary based on filing status. For instance, for a single filer, the AGI limit can be around $17,500, or $25,000 for married couples if both qualify.

For the Earned Income Tax Credit, eligibility hinges on having earned income below certain thresholds, which are adjusted annually. Disability retirement benefits are considered earned income until the taxpayer reaches the minimum retirement age for their plan. Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) generally do not count as earned income for EITC purposes. A qualifying child with a disability can be any age for EITC purposes, waiving the typical age limit, provided other EITC requirements are met.

The Child Tax Credit allows up to $2,000 per qualifying child, while the Credit for Other Dependents provides up to $500. For a child with a disability to qualify for the Child Tax Credit, they must generally be under age 17, meet relationship, residency, and support tests, and have a valid Social Security number. For the Credit for Other Dependents, there is no age limit for a disabled qualifying individual, provided they meet support and residency tests and other requirements.

The Medical Expense Deduction allows taxpayers to deduct qualified unreimbursed medical expenses exceeding 7.5% of their Adjusted Gross Income (AGI). Qualified expenses include payments for diagnosis, treatment, prescription medications, and certain disability-related home modifications like ramps or widening doorways, if their main purpose is medical care and they do not significantly increase the home’s value. This deduction is claimed by itemizing deductions on Schedule A, meaning the total itemized deductions must exceed the standard deduction to provide a tax benefit.

Claiming Your Tax Benefits

To claim the Credit for the Elderly or the Disabled, taxpayers must complete Schedule R (Form 1040), Credit for the Elderly or the Disabled. This form guides the calculation of the credit based on age or disability status, filing status, and income. It is then attached to Form 1040, the main individual income tax return.

For the Earned Income Tax Credit, eligible individuals must file a tax return, even if they do not otherwise owe taxes. The credit is calculated and claimed on Form 1040, and if there is a qualifying child, Schedule EIC (Form 1040) is typically required.

The Child Tax Credit and the Credit for Other Dependents are calculated on Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents. This schedule is also attached to Form 1040. It is important to have the Social Security number for each qualifying child claimed.

The Medical Expense Deduction is claimed on Schedule A (Form 1040), Itemized Deductions. Taxpayers must keep thorough records, including doctor’s statements, medical bills, and receipts for qualifying expenses. Documentation for disability, such as a physician’s statement, should be retained for personal records in case the IRS requests verification. These documents substantiate eligibility and the amounts claimed, ensuring compliance with tax regulations.