A disability often means loss of income and significant medical expenses. Fortunately, the IRS offers some helpful assistance to the disabled, including credits that are subtracted directly from the total tax liability. Employers and caregivers in the household can also earn credits for assisting the disabled.
Individuals on Social Security Disability qualify for a handful of tax credits. These include a disability tax credit, earned income credit and the work opportunity tax credit.
Credit for Disabled, Spouse and Dependents
The IRS allows you a disability tax credit in 2017 if you have stopped working due to a permanent and total disability. The disability must have lasted, or be expected to last, at least 12 months; to claim the credit you also must have supporting records or doctor’s statements. There is no minimum age, as long as you received disability income during the year. If you are married, you must file a joint return to claim this credit. As of 2017, the base amount of the credit ranges from $3,750 to $7,500, depending on your age and filing status. You must complete IRS Schedule R to figure the amount of the credit.
If you pay for the care of a disabled spouse or dependent, the IRS allows a tax credit of up to 35 percent of the total medical or caregiver expenses. The dependent child must be under age 13. The IRS also allows the credit for the care of someone who lived with you for more than half the year, but doesn’t otherwise qualify as a dependent. For both the child and dependent care credit and the credit for the disabled you must use Form 1040 or 1040A; you cannot claim the credits on a 1040EZ.
Earned Income Credit with a Disability
Disabled taxpayers may also claim the earned income credit; there is no special qualification for the disability, but the EIC is available if you earned a limited amount of money from wages or a salary. The maximum earned income to qualify in 2017 was $15,010 for a single person with no dependent children, up to $53,930 for married, joint filers with three or more children. The figures increase to $15,270 for a single person with no dependent children and up to $54,884 for married and joint filers with three or more children in the 2018 tax year. The IRS does not count Social Security disability or Supplemental Security Income toward earned income; however, benefits from employer-provided disability insurance are counted if you have not yet reached the policy's minimum retirement age.
Work Opportunity Tax Credit
If you are disabled but ready to join the workforce, let potential employers know about disability tax deductions, significant credits against salaries paid to any newly hired disabled employees. For the employer to claim the work opportunity tax credit, the employee must be using vocational rehabilitation services, drawing Supplemental Security Income or drawing VA disability. The credit maxes out at $2,400 for the first year of employment, an amount that the IRS doubles for the hiring of disabled veterans. This credit has been extended through the 2019 tax year.
- IRS: Credit for the Elderly and Disabled
- IRS: Tax Highlights for Persons with Disabilities
- SSA: SSDI Only Employment Supports
- Department of Labor: Work Opportunity Tax Credit
- H&R Block: If I'm on Disability, Do I Qualify for the Earned Income Credit (EIC)?
- IRS: Disability and Earned Income Tax Credit
- IRS: 2017 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates
- The Motley Fool: 2018 Earned Income Tax Credit: 3 Limits You Need to Know
- Paychex: Work Opportunity Tax Credit (WOTC) Calculator
- IRS. "Credit for the Elderly or the Disabled at a Glance." Accessed June 13, 2020.
- Cornell Law School Legal Information Institute. "26 U.S. Code § 22. Credit for the Elderly and the Permanently and Totally Disabled." Accessed June 15, 2020.
- IRS: "Schedule R Credit for the Elderly or the Disabled." Accessed June 13, 2020.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.