Turn those tax blues into breaks.
By Tom Scott
Tax season is once again upon us. Before you prepare to file your return you may want to ask yourself if you really know your entitlements as a person with a disability. There are income exclusions, tax deductions, and credits available to people with spinal cord injuries and disorders that you may not be aware of.
TAXABLE INCOME EXCLUSIONS
Dependent Care Benefits
You can exclude from income benefits provided under your employer’s qualified dependent care benefit plan. You may be able to exclude up to $5,000 ($2,500 if married filing separately).
VA Disability Benefits
Do not include disability benefits you receive from the Department of Veterans Affairs (VA) in your gross income. Do not include in your income any veterans’ benefits paid under any law, regulation, or administrative practice administered by the VA. These include:
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• 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,
• Interest on insurance dividends left on deposit with the VA,
• Benefits under a dependent-care assistance program, or
• The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001.
Other Payments
You may receive other payments that are related to your disability. The following payments are not taxable.
• Benefit payments from a public welfare fund, such as payments due to blindness.
• Workers’ compensation for an occupational sickness or injury if paid under a workers’ compensation act or similar law.
• Compensatory (but not punitive) damages, for physical injury or physical sickness.
• Disability benefits under a “no-fault” car insurance policy for loss of income or earning capacity as a result of injuries.
• Compensation for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement.
TAX DEDUCTIONS
Disability-Related Medical Expenses
You have the right to deduct medical and dental expenses for you, your spouse, and your dependents. You can deduct only the part of your medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI). This includes payments for the diagnosis, cure, mitigation, treatment, and prevention of disease; for treatment affecting any part or function of the body; the cost of transportation for needed medical care; and payments for medical insurance.
Below are some examples of deductible medical expenses:
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• Artificial limbs, eyeglasses, and hearing aids.
• The part of the cost of Braille books and magazines that is more than the price of regular printed editions.
• Cost and repair of special telephone equipment for hearing-impaired persons.
• Cost of equipment that displays the audio part of television programs as subtitles for hearing- impaired persons.
• Cost and maintenance of a wheelchair or autoette.
• Cost and care of a guide dog or other animal aiding a person with a physical disability.
• A therapist or other person who gives “patterning” exercises to a (developmentally disabled) child.
• A special school, if the main reason for using the school is its resources for relieving a
mental or physical disability. This includes the cost of teaching and the cost of remedial
language training to correct a condition caused by a birth defect.
• Premiums for qualified long-term care insurance, up to certain amounts.
• Improvements to a home that do not increase its value if the main purpose is medical care. An example is constructing entrance or exit ramps. Note: Improvements that increase a home’s value, if the main purpose is medical care, may be partly included as a medical expense.
Impairment-Related Work Expenses
If you are employed and have a physical or mental disability that functionally limits your employment, or a physical or mental impairment that substantially limits one or more of your major life activities, you may be able to claim impairment-related work expenses. These are your allowable business expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to work.
Generally, employee business expenses are subject to a 2%-of-adjusted-gross-income limit. However, impairment-related work expenses are not subject to the 2% limit.
TAX CREDITS
Disabled or Elderly-You may be eligible for a tax credit of 15% of your disability income if you are under the age of 65 and retired or on permanent and total disability—meaning you are unable to engage in any gainful activity due to your physical or mental condition.
Child and Dependent Care-If you pay someone to care for either your dependent under age 13 or your spouse or dependent who is not able to care for himself or herself, you may be able to get a credit of up to 35% of your expenses. To qualify, you must pay these expenses so you can work or look for work.
Earned Income Tax Credit-You are entitled to this credit only if your earned income for 2006 was less than:
• $12,120 ($14,120 for married filing jointly) and you did not have a qualifying child,
• $32,001 ($34,001 for married filing jointly) and you had one qualifying child, or
• $36,348 ($38,348 for married filing jointly) and you had more than one qualifying child.
Business Tax Incentives
If you own or operate a business, or you are looking for work, you should be aware of the following tax incentives for businesses to help persons with disabilities.
• Deduction for costs of removing barriers to the disabled and the elderly-This is a deduction a business can take for making a facility or public transportation vehicle more accessible to and usable by persons who are disabled or elderly.
• Disabled access credit-This is a nonrefundable tax credit for an eligible small business that pays or incurs expenses to provide access to persons with disabilities. The expenses must be to enable the eligible small business to comply with the Americans with Disabilities Act of 1990.
FREE TAX FILING ASSISTANCE
Filing taxes can sometimes be stressful and confusing, especially with so many different forms to fill out and procedures to follow. There are, however, free IRS tax assistance programs available to those that qualify.
Volunteer Income Tax Assistance Program (VITA)
The VITA program is a very useful, free service that has been offered by the IRS since 1975 to assist individuals filing their tax returns. To qualify for the program your annual income must be $39,000 or below. VITA sites are staffed by trained volunteers and can be found in communities nationwide, usually located at community and neighborhood centers, libraries, schools, shopping malls, and so forth. A majority of VITA sites offer free electronic filing, enabling you to receive your refunds much faster than paper filing.
To locate a VITA location near you, call 1-800-829-1040, or for further information on the program please visit www.irs.gov/individuals/article/0,,id=107626,00. html.
If you plan on utilizing a VITA site to file your return, there are a few important items you will need to bring with you:
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• Proof of identification
• Social Security Cards for you, your spouse and dependents and/or a Social Security Number verification letter issued by the Social Security Administration
• Birth dates for you, your spouse and dependents on the tax return
• Current year’s tax package if you received one
• Wage and earning statement(s) Form W-2, W2G, 1099-R, from all employers
• Interest and dividend statements from banks (Forms 1099)
• A copy of last year’s Federal and State returns if available
• Bank Routing Numbers and Account Numbers for Direct Deposit
• Total paid for day care provider and the day care provider’s tax identifying number (the provider’s Social Security Number or the provider’s business Employer Identification Number)
• To file taxes electronically on a married filing joint tax return, both spouses must be present to sign the required forms. Tax Counseling for the Elderly (TCE)
This program provides free tax help to people age 60 and older. Trained volunteers from non profit organizations provide free tax counseling and basic income tax return preparation for senior citizens.
As part of the IRS-sponsored TCE Program, AARP offers the Tax-Aide counseling program at more than 7,400 sites nationwide during the filing season for those age 60 and older.
For more information on TCE call 1-800-8291040. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit www.aarp.org/money/taxaide/.
The information provided above is published in IRS Publication 907-Tax Highlights for Persons with Disabilities, an excellent resource for filing guidelines. For more detailed information on these guidelines, you can access Publication 907 through the IRS Web site at www.irs.gov/publications/p907/.
Tom Scott is staff editor.
