Do you live with a disability, or care for someone who does? If so, you may have disability-specific tax questions about income, deductions, and credits.
Here’s an overview.
* Income. In general, all income is taxable on your federal tax return, unless specifically excluded. For instance, income you earn for services is typically taxable, even if you are disabled. Part of your social security disability benefits may also be taxable, depending on your total income (including tax-exempt interest). However, supplemental security income is not taxable.
Other nontaxable disability payments include VA benefits, workers’ compensation when work-related and received under a workers’ compensation act, and wage-loss benefits from no-fault car insurance policies.
* Deductions and credits. You already know you can deduct medical expenses related to your disability, subject to the 10%-of-adjusted-gross-income limitation (7.5% for those 65 or older).
But what about impairment-related work expenses? These are out-of-pocket costs you incur so you can work, such as attendant care, and you claim them as an employee business deduction. This is an itemized deduction, not subject to the 2% of adjusted gross income limit. When you’re self-employed, impairment-related work expenses are deductible on your “Schedule C, Profit or Loss From Business.”
If you work and must pay for disabled spouse or dependent care, you may qualify for a federal income tax credit of up to 35% of your expenses.
Depending on your disability and income, other exclusions and tax benefits may be available. Call us if you would like more information.
Written by: Doug Rodrigues