a program of the Center for Disabilities and Development, The University of Iowa's Center of Excellence in Developmental Disabilities
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Tax Facts for People with Disabilties
Last Update: December 2016
This tip sheet is a joint project of Iowa Legal Aid and Iowa Compass. This tip sheet for information only. It is NOT meant as tax advice.
Note: The Internal Revenue Service (IRS) updates Federal tax forms and publications each year. You can tell if you have the most current one by the date listed in the title. Check the IRS webpage (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 many ways. Here are just a few. Some of these tax breaks are only for people who use assistive technology. Others are for people with disabilities whether or not they use assistive technology. A few are for all low-income people, with or without disabilities. We include them here because studies show people with disabilities are more likely than people without disabilities to have low incomes. We include hyperlinks to more information with each section. You might have to scroll down each webpage to find the right information for you.
Income means any money you get from any source. 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. For more information, see the IRS Publication: "Publication 915, Social Security and Equivalent Railroad Retirement Benefits" http://www.irs.gov/pub/irs-pdf/p915.pdf
Disability Pensions and Workers’ Compensation
There are two types of benefits for workers who become disabled. Some employers offer disability insurance for their workers. If the worker becomes disabled and cannot work, the insurance pays the worker money. You might not have to pay taxes on any money you get from the insurance. It depends on who pays the costs of the insurance plan. If your employer pays the cost of the insurance, you may have to pay taxes on any money you get from the insurance. If you have to pay the entire cost yourself, you do not have to pay taxes on any money you get from the insurance. Another benefit for workers is called workers’ compensation. Workers’ compensation pays money to workers injured on the job. You do not have to pay taxes on any money you get from a government-run workers' compensation program. You can read more about this in the IRS publication: "Publication 907, Tax Highlights for Persons with Disabilities, see under Disability Pensions." http://www.irs.gov/pub/irs-pdf/p907.pdf
Compensation for Personal Injury or Sickness
There are other reasons you might get money if you get sick or hurt. You might get money from a personal injury lawsuit. You might get money from a "no-fault" car insurance policy. Or you might get money from a qualified long-term care insurance policy. You may not have to pay taxes on these types of income if they are “compensation” for your injury or sickness. Compensation pays you back for costs related to your injury or sickness. Compensation includes things like money to pay you back for medical bills or lost wages. Compensation does not include punitive damages in a personal injury lawsuit. You can read more about this in the IRS publication: "Publication 17, Your Federal Income Tax, see under Sickness and Injury Benefits" http://www.irs.gov/pub/irs-pdf/p17.pdf
Dependent Care Benefits
It can cost a lot to have someone take care of your children or a disabled adult family member while you work. Some employers have programs to help their workers pay for these costs. If your employer has a program like this, you might not have to pay taxes on the money you get from this program. 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, Child and Dependent Care Expenses" http://www.irs.gov/pub/irs-pdf/p503.pdf
Veterans Administration Disability Benefits
Some military and government disability payments are not taxable. These include disability benefits paid by the Department of Veterans Affairs (VA). There are many kinds of disability benefits paid by the VA. Some disability benefits include:
- education, training, or subsistence allowances (money for basic needs such as food, clothing and shelter)
- disability compensation and pension payments for disabilities paid to veterans or their families
- grants to pay for homes designed for wheelchair living
- grants to pay for motor vehicles for veterans who lost their sight or the use of their arms or legs
- veterans' insurance proceeds and dividends paid to veterans or their beneficiaries
Military pensions not related to a disability may be taxed. You can read more about this in the IRS publication: "Publication 907, Tax Highlights for Persons with Disabilities, see under Military and Government Disability Pensions" http://www.irs.gov/pub/irs-pdf/p907.pdf
Medicaid Waiver Payments to Caregivers
Medicaid Home and Community Based Services (HCBS) 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 paid by 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: https://www.irs.gov/Individuals/Certain-Medicaid-Waiver-Payments-May-Be-Excludable-From-Income
Deductions are amounts of money you subtract from your total income before you figure out how much tax you owe. Some deductions apply only to federal income tax. Some deductions apply only to Iowa state income tax. Some deductions can be taken on both federal and Iowa state income tax returns.
When you file your taxes, you can either claim a “standard” deduction or “itemize” (list) some of your deductions. A standard deduction is an amount of money every taxpayer can subtract from their income before they figure out their tax. It is based on the average amount people pay for certain expenses.
Some people can benefit from itemizing their deductions instead of claiming the standard deduction. Itemizing your deductions means claiming deductions for your actual expenses. You might choose to itemize your deductions if you had high expenses. Itemizing might give you a higher deduction than claiming the standard deduction. People with disabilities may have expenses that can be itemized. If you think you might itemize your deductions, you should keep any receipts and other papers that show how much you spent.
Standard Deduction for People Who Are Blind
People who are blind or partly blind get a larger standard deduction than people who are not blind. If you are blind, make sure to mark this on your tax return. You can read more about this in the IRS publication: "Publication 17, Your Federal Income Tax, see under Part 5-20 Higher Standard Deduction for Blindness" http://www.irs.gov/publications/p17/index.html
This is a federal deduction that is also used on Iowa state tax forms. You cannot deduct all of your medical expenses. For 2016, you can start deducting medical expenses once your total expenses for the year are over 10% of your adjusted gross income. If you or your spouse were born before January 2, 1951, you can start deducting medical expenses once your total expenses for the year are over 7.5% of your adjusted gross income. This will change next year. Starting with 2017, the 10% will apply to all taxpayers. The term "medical expenses" includes many things besides doctor visits and medicines. Some medical expenses include:
- travel to and from the place where you get your medical care
- medical devices like wheelchairs and adaptive devices such as TTYs
- modifications like a ramp, grab bars, wider doorways, or visual fire alarms that make your home more accessible
- modifications like hand controls or a wheelchair lift to make your vehicle more accessible
- costs of getting, training, and caring for a service animal
- fees to attend special schools for people with disabilities
You cannot deduct any medical expenses paid for by insurance or someone else. You can read more about this in the IRS publication: "Publication 502, 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 at work. You can read more about this in the IRS publication: "Publication 907, Tax Highlights for Persons with Disabilities" http://www.irs.gov/pub/irs-pdf/p907.pdf
Expenses Incurred for Care of a Disabled Relative
This is a deduction on your Iowa state taxes. The State of Iowa lets you deduct expenses to care for a disabled relative in your home. The relative must be your child, grandchild, parent, or grandparent. The person must be unable to live on their own because of a physical or mental disability. The person must get or be eligible for Medicaid benefits. 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
You might get to take a tax deduction for donations to certain charities. This includes donating a wheelchair or other medical equipment. You can read more about this in the IRS publication: "Publication 526, "Charitable Contributions" http://www.irs.gov/pub/irs-pdf/p526.pdf
Tax credits are payments the government gives you that lower 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 lowers the amount of tax you owe to zero. You don’t owe $1,000, 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 lowers the amount of tax you owe to zero. You don’t owe $1,000, 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 for having children that live with you and are supported by you. You can read more about this in the IRS publication: "Publication 972, Child Tax Credit"
Child and Dependent Care Credit
This is a non-refundable federal tax credit for paying someone to care for children or people with disabilities in your family. You can read more about this in the IRS publication: "Publication 503, Child and Dependent Care Expenses" http://www.irs.gov/pub/irs-pdf/p503.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, Credit for the Elderly or the Disabled" http://www.irs.gov/pub/irs-pdf/p524.pdf
Earned Income Credit (EIC)
This is a federal tax credit 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. You can read more about this in the IRS publication: "Publication 596, Earned Income Credit (EIC)" http://www.irs.gov/pub/irs-pdf/p596.pdf
Premium Tax Credit
This is a federal tax credit for people who get health insurance through the Health Insurance Marketplace. If a person is eligible for financial help with the cost of their insurance, they can 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, "Health Care Law: What's New for Individuals and Families" http://www.irs.gov/pub/irs-pdf/p5187.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 (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
Disabled Veteran Homestead Property Tax Credit
This helps veterans pay for their property taxes. There is a form must be filed with your county assessor by July 1 of the year the property taxes are assessed. https://tax.iowa.gov/disabled-veteran-homestead-property-tax-credit
State Sales Tax Exemption
Iowa law exempts mobility enhancing equipment, prosthetic devices, and durable medical equipment from state sales tax. You should not have to pay any sales tax on these types of equipment after July 1, 2005. This is described in: "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. It also helps them make their buildings accessible by ADA standards for both employees and customers with disabilities. You can read more about this in the IRS publication: "Publication 334, 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 employees, including people with disabilities. You can read more about this in the IRS publications: "Form 8850" http://www.irs.gov/pub/irs-pdf/f8850.pdf and "Instructions for form 8850" http://www.irs.gov/pub/irs-pdf/i8850.pdf
Architectural and Transportation Barrier Removal Deduction
This federal tax deduction lets employers 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, "Business Expenses" http://www.irs.gov/pub/irs-pdf/p535.pdf
Small Business Income Deduction
This is a state tax deduction for some Iowa employers. Only employers that meet the definition of “small business” can take this deduction. These businesses can take an additional deduction on their Iowa income tax returns for hiring persons with disabilities. They can deduct 65 percent of the wages paid in the first 12 months of employment. The deduction is capped at $20,000 per employee. 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 online or 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.