a program of the Center for Disabilities and Development, The University of Iowa's Center of Excellence in Developmental Disabilities
Tax Facts for People with Disabilities
Last Updated: February 10, 2015
This fact sheet is a joint project of Iowa Legal Aid and the Iowa Program for Assistive Technology.
**Please note: Any federal tax form or publication that is dated 2013 is scheduled to be updated for use with 2014 taxes. Please continue to check the Internal Revenue Service web page (listed below) for updates. You can search using the publication number in each section.
People who use assistive technology can save money on their taxes in all kinds of ways. Here are just a few. Some of these tax breaks are only available to people who use assistive technology. Others are available to people with disabilities whether they use assistive technology or not. Finally, a few are available to all low-income people, even if they are not disabled. We include them here because studies show people with disabilities are more likely to have low-incomes than people without disabilities. This fact sheet is NOT intended as tax advice. Hyperlinks to more information are included with each section. Users might have to scroll down each site for the specific information they are seeking.
You have to pay taxes on all income that is not excluded. Here are some kinds of income you might not have to pay taxes on:
Social Security and Railroad Retirement Benefits If the only income you have is Social Security or Railroad Retirement benefits, you probably do not have to pay taxes on your income. If you get other income, you might have to pay taxes on some or all of your benefits. See the Internal Revenue Service's (IRS) Publication: "Publication 915 (2014), Social Security and Equivalent Railroad Retirement Benefits" http://www.irs.gov/pub/irs-pdf/p915.pdf for more information.
Disability Pensions Some employers offer disability insurance. The employer may pay part of the cost of this insurance, or you may have to pay the entire cost yourself. If you have to pay the entire cost yourself, any payments you get from the insurance when you become disabled are not taxable. Any payments you get from a government-run workers' compensation program are also not taxable. You can read more about this in the IRS publication: "Publication 907 (2014), Tax Highlights for Persons with Disabilities." http://www.irs.gov/pub/irs-pdf/p907.pdf
Compensation for Personal Injury or Sickness You may not have to pay taxes on any money you get as compensation for personal injury or sickness. This includes things like compensatory damages from a personal injury lawsuit (but not punitive damages), benefits paid to you under a "no-fault" car insurance policy, and benefits paid to you under qualified long-term care insurance policies. You can read more about this in the IRS publication: "Publication 17 (2014), Your Federal Income Tax." http://www.irs.gov/pub/irs-pdf/p17.pdf
Dependent Care Benefits Some employers have programs that help employees pay for someone to take care of family members who cannot take care of themselves, like children or disabled adults. If your employer's program qualifies, you might not have to pay taxes on the first $5,000 you get under the program. You can read more about this in the IRS publication: "Publication 503 (2014), Child and Dependent Care Expenses" http://www.irs.gov/pub/irs-pdf/p503.pdf.
Veterans Administration Disability Benefits In addition, certain military and government disability payments are not taxable. These include any disability benefit paid by the Department of Veterans Affairs. Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the VA. These include; education, training, or subsistence allowances; disability compensation and pension payments for disabilities paid either to veterans or their families; grants for homes designed for wheelchair living; grants for motor vehicles for veterans who lost their sight or the use of their limbs; veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death, or interest on insurance dividends left on deposit with the VA. Military pensions that are not related to a disability may be taxed. You can read more about this in the IRS publication: "Publication 907 (2014), Tax Highlights for Persons with Disabilities" http://www.irs.gov/pub/irs-pdf/p907.pdf.
Medicaid Waiver Payments to Caregivers Iowa Medicaid waivers pay some caregivers to give non-medical care to people who live with them. Starting on January 3, 2014, the caregiver no longer has to pay federal income tax on that money. For more information, visit: http://www.irs.gov/irb/2014-4_IRB/ar06.html. If you were getting paid by Iowa Medicaid Waivers to provide this care in the last three years, you can file amended tax returns to get a refund. Amended returns can be filed for the past 3 tax years. For more information, visit: http://www.irs.gov/irb/2014-4_IRB/ar06.html.
Deductions are amounts of money you get to subtract from your total income before you compute how much tax you owe on it. If you spend $100 on something that is 100% tax-deductible, then you get to subtract $100 from your income before figuring your tax. If you spend $100 on something that is 75% deductible, then you get to subtract $75.
Medical Expenses This is a federal deduction that is also used in Iowa state tax forms. You can start deducting medical expenses once your total expenses for the year are over 7.5% of your adjusted gross income. The term "medical expenses" includes many things besides doctor visits and medicines. It includes things like transportation to and from the place where you get your medical care, medical devices like wheelchairs, and some modifications to your home (like wheelchair ramps). It also includes things like service animals, adaptive devices such as TTYs, and tuition for special schools for people with disabilities. You can read more about this in the IRS publication: "Publication 502 (2014), Medical and Dental Expenses" http://www.irs.gov/pub/irs-pdf/p502.pdf.
Impairment-Related Work Expenses You may also be able to deduct the cost of adaptive devices or assistants that you need at work. You can read more about this in the IRS publication: "Publication 907 (2014), Tax Highlights for Persons with Disabilities" http://www.irs.gov/pub/irs-pdf/p907.pdf.
Standard Deduction for People who are Blind The standard deduction is an amount of money that every taxpayer gets to subtract from their income before they figure their tax. People who are blind or partly blind get a larger standard deduction than people who are not blind. If you are blind, make sure it is indicated on your tax return. You can read more about this in the IRS publication: "Publication 17 (2014), Your Federal Income Tax" http://www.irs.gov/publications/p17/index.html.
Expenses Incurred for Care of a Disabled Relative The State of Iowa provides a deduction for expenses incurred in caring for a disabled relative in your home The expenses must be for the care of a person who is your grandchild, child, parent, or grandparent. The disabled person must be unable, by reason of physical or mental disability, to live independently and must be receiving or be eligible to receive medical assistance benefits under Title 19 of the U.S. Social Security Act. Details about this deduction are included in the expanded instructions for filling out Iowa's 1040 Long Form, "https://tax.iowa.gov/expanded-instructions/deduction#Medical"
Donating Equipment When you donate a wheelchair or other medical equipment to a 501c(3) charitable organization, you might get to take a tax deduction. Contact a tax expert for more information. You can read more about this in the IRS publication: "Publication 526 (2014), "Charitable Contributions" http://www.irs.gov/pub/irs-pdf/p526.pdf
Tax credits are payments the government gives to you that decrease the amount of tax you owe. There are two kinds of tax credits: non-refundable and refundable. With non-refundable credits, you can't get more money than what you owe the government. With refundable credits you can. Let's say you owe $1,000 in taxes and you qualify for a $1,500 non-refundable tax credit. The tax credit reduces your tax liability to zero, so you dont owe any tax. But you don't get the other $500: it simply "vanishes." Now let's say you owe $1,000 in taxes and you qualify for a $1,500 refundable tax credit. The tax credit reduces your tax liability to zero, and you get some or all of the extra $500 in cash from the government.
Child Tax Credit (CTC) This is a non-refundable federal tax credit that you get for having children that live with you and are supported by you. You can read more about this in the IRS publication: "Publication 972 (2014), Child Tax Credit" http://www.irs.gov/pub/irs-pdf/p972.pdf
Child and Dependent Care Credit This is a non-refundable federal tax credit that you get when you have to pay someone to care for children or people with disabilities in your family. You can read more about this in the IRS publication: "Publication 503 (2014), Child and Dependent Care Expenses" http://www.irs.gov/pub/irs-pdf/p503.pdf.
Earned Income Credit (EIC) This is a federal tax credit that you get for having children in your household and getting at least some of your income from work. It is a refundable credit, which means you could not only end up owing no tax, but getting extra money from the government as well. You can read more about this in the IRS publication: "Publication 596 (2014), Earned Income Credit (EIC)" http://www.irs.gov/pub/irs-pdf/p596.pdf.
Credit for the Elderly or the Disabled This is a non-refundable federal tax credit for qualifying persons who are elderly or who retired on permanent and total disability and have taxable disability income. You can read more about this in the IRS publication: "Publication 524 (2014), Credit for the Elderly or the Disabled" http://www.irs.gov/pub/irs-pdf/p524.pdf.
Property Tax Credit and Rent Reimbursement If you own real property (land or buildings), you probably have to pay property tax on it. If you are totally disabled, however, you might be entitled to a tax credit from the State of Iowa. You can only claim this credit if your household income is below a certain amount. You will have to fill out a special form and turn it in with your state tax return. (If you are not disabled, you can still claim this credit if your income is below a certain amount and you were 65 years old by the end of the tax year). The State of Iowa has this form at this webpage: "Property Tax Forms and Information" https://tax.iowa.gov/sites/files/idr/forms1/54002.pdf.
If you rent your home and are totally disabled (or at least 65 years old), you can apply for rent reimbursement. The same income limit applies (that is, your household income must be below a certain amount). As with the Property Tax Credit, there is a special form to fill out and turn in with your state tax return. The State of Iowa has this form at this webpage: https://tax.iowa.gov/property-tax-credits-and-exemptions#Disabled.
Premium Tax Credit This is a tax credit for people who get health insurance through the Health Insurance Marketplace. If a person can get financial help with the cost of their insurance, they can choose to get that help as a tax credit on their federal income tax return. You can read more about this in the IRS publication: Publication 5187 (2014), "Health Care Law: What's New for Individuals and Families" http://www.irs.gov/pub/irs-pdf/p5187.pdf.
State Sales Tax Exemption
Iowa law exempts from sales tax: mobility enhancing equipment, prosthetic devices and durable medical equipment. You should not have to pay any sales tax on these types of equipment after July 1, 2005. This is described in this document: "Iowa Sales Use and Tax Information" https://tax.iowa.gov/medical-clinics-and-related-businesses-iowa-sales-and-use-tax-information.
Motor Vehicle Registration
Motor vehicle registration is not really a tax; it is more like a fee. But if you drive a motor vehicle that has special equipment to help you get in and out of it (like a wheelchair lift), you can get your vehicle registration fee reduced. Ask about this fee reduction at your County Treasurer's office when you register your car or van.
For Employers Only
These are tax breaks for employers who hire employees with disabilities. If you have a disability, make sure your employer knows about these:
Disabled Access Credit (DAC) This is a federal tax credit that helps small business make building and equipment modifications and do other things to make their buildings accessible to ADA standards for both employees and customers with disabilities. You can read more about this in the IRS publication: "Publication 334 (2014), Tax Guide for Small Business" http://www.irs.gov/pub/irs-pdf/p334.pdf.
Work Opportunity Tax Credit (WOTC) This is a federal tax credit employers can get for hiring certain kinds of employees, including people with disabilities. You can read more about this in the IRS publication: "Form 8850 (2013)" http://www.irs.gov/pub/irs-pdf/f8850.pdf and "Instructions for form 8850 (2013)" http://www.irs.gov/pub/irs-pdf/i8850.pdf.
Architectural and Transportation Barrier Removal Deduction This federal tax deduction allows employers to deduct some of the cost of making buildings and vehicles accessible for people with disabilities. You can read more about this in the IRS publication: "Publication 535 (2013), "Business Expenses" http://www.irs.gov/pub/irs-pdf/p535.pdf.
Small business income deduction This is a state tax deduction for Iowa employers. Businesses are allowed an additional deduction on their Iowa income tax returns for hiring persons with disabilities. This deduction is 65 percent of the wages paid in the first 12 months of employment; the deduction ceiling is $20,000 per employee. Only those employers that meet the "small business" definition can claim the deduction for employing persons with disabilities. More information is available on line: "Iowa Benefit for Employers Who Hire Persons with Disabilities" https://tax.iowa.gov/income-tax-benefit-iowa-employers-who-hire-persons-disabilities.
State Tax Information You can reach the State of Iowa Department of Revenue at https://tax.iowa.gov/contact-us.
800-367-3388 or 515-281-3114 (Iowa, Rock Island, Moline, Omaha)
Calls are answered Monday through Friday, 8 a.m. to 4:15 p.m. Central Time.
Federal Tax Information You can reach the United States Internal Revenue Service (IRS) at http://www.irs.gov.
800-829-1040 (for Individuals) or
800-829-4933 (for Businesses)
Calls are answered Monday Friday, 7:00 a.m. 7:00 p.m. your local time. You may ask questions to help you prepare your tax return, or ask about a notice you have received.
Publication: Living and Working with Disabilities: Tax Benefits and Credits
This is a free online publication that provides information about federal tax benefits and credits for people living and working with disabilities. "Publication 3966 (2013) Living and Working with Disabilities" http://www.irs.gov/pub/irs-pdf/p3966.pdf. For a free paper copy of any listed form or publication, call 1-800-829-3676.
Help preparing your taxes is available at many local public libraries. Check the telephone book for the number of the public library nearest you. You may also dial 2-1-1 and ask for a complete list of free tax assistance programs near you.
Please note: Iowa COMPASS provides this fact sheet for information purposes only.
Center for Disabilities and Development
100 Hawkins Drive S295
Iowa City, IA 52242-1011