Taxes and Disability Deductions

Taxes and Disability Deductions

With the sweeping new tax law passed through Congress in 2017 came many changes to tax rates and tax deductions. Learning the changes this tax law brings is vital, especially if you have a disability. As a person with a disability, you may be eligible for tax deductions that have been affected under this law. Learn more about taxes and disability deductions below, along with what the new tax law changes mean for you.

Income Tax and Social Security Benefits

A major change the new tax law brought was a generally lower income tax rate for everyone, even for people without disabilities. This new tax cut can bring you hundreds of dollars in savings, depending on your total taxable income per year. If you have taxable income, such as money from employment, you will most likely save money through these general tax cuts.

The good news is that Social Security benefits are not considered taxable income on their own. This means that if your SSI and/or SSDI cash benefits are your only form of income, your benefits will not be taxed. However, if you or your spouse earn taxable income from another source, you will have to pay taxes on your taxable income, along with a portion of your SSI/SSDI earnings.

Tax Deductions and Credits

There are several different tax deductions that you may be eligible for if you have a disability. One of these tax deductions are for medical expenses. Typically, medical expenses can be deducted from your taxes until the expenses exceed 10% of your adjusted gross income. SSI payments are not included in your gross income.

Certain other disability-related payments can be deducted from your taxes, such as impairment-related work expenses. Visit our impairment-related work expenses page to learn more about these tax deductions for people with disabilities.

Tax credits can also help you save money on your taxes. The good news is that, under the new tax law, the child tax credit doubled from $1,000 to $2,000 per child. This means that if you have children, you can deduct up to $2,000 per child on your taxes. This tax credit can be incredibly beneficial when it comes to having the income to care for your family.

There is another tax credit that could help you save money called the Credit for the Elderly or Disabled. If you are under the age of 65 and have retired on permanent disability benefits, you may be able to claim thousands of dollars through this tax credit.

Earned Income Tax Credit (EITC) can also help you save money on your taxes. EITC is for people who are employed and are making low to moderate income per year. The EITC can provide you with a tax deduction or an increased tax refund. Most people with disabilities who work and are between the ages of 25 and 65 are eligible for this tax credit. You must file a tax return to determine your eligibility for this tax credit. This means that, if you owe no tax, you are not eligible for this credit.

ABLE Accounts

ABLE accounts experienced many changes through the new 2017 tax law. ABLE accounts are tax-advantaged savings accounts that people with disabilities can use to help save money over time. ABLE accounts allow eligible account holders with disabilities to set aside no more than $15,000 per year into their savings. Under the new 2017 tax law, qualified individuals are now allowed to set aside up to $27,060 per year into their savings.

The new tax law also allows eligible people with disabilities to qualify for a saver’s credit for their retirement savings. This new provision looks at the contributions someone makes to their ABLE account and determines if the person is eligible for an increase of up to $1,000 on their tax refund.

Another provision under the new tax law changed how ABLE accounts work in conjunction with section 529 accounts. This new provision allows people with disabilities to transfer money from their section 529 education accounts to their ABLE accounts. People can only do this if they are not likely to use their section 529 money for education purposes. Now that this money can “rollover” into ABLE accounts, people with disabilities can have even more savings for the future.

Ask a Professional About Tax Changes Each Year

Tax laws change from year to year, meaning it is especially important to pay attention to how changes in disability tax rates, deductions, and credits may affect you. While the information above is accurate for the year 2019, 2020 may bring some new tax changes. Tax laws can also vary from state to state; it’s important to talk to a disability tax professional about your unique situation to determine all of the deductions and rates for which you qualify.