Taxes for people with disabilities

Having disabilities is already a challenge for an individual to cope up with the rigors of daily life and faces even more challenges in trying to earn a living and be a efficient functioning member of society.

For this matter, the IRS has mandated a special set of guidelines in exempting some of the income earned by people with disabilities.

People with disabilities usually receive benefits from their employers and also special pensions from the government. All of these are considered income earned and are taxable, but, they also have certain exceptions. If you are a person with disability, the following are considered deductible from your taxable income:

1)    Dependent Care Benefits  

These may include:

–       Any payment made the employer  to individual or the individual’s healthcare/care provider for the beneficiary’s care during the individual’s employment

–       The cost of care (fair market value) in a healthcare facility that Is paid by the individual’s employer.

–       Contributions (Pre-tax) made by the individual under a dependent care negotiable spending plan/arrangement.

Exemptions: If the employer was responsible for making payments to the individual’s dependent care benefits under a qualified arrangement, the individual can declare these benefits as exemptions. Check with your employer if your benefit plan is eligible for this exemption. This can be claimed by filling out a Form 2441(Child and Dependent Care Expenses). Don’t use 1040EZ.

2)    Social Security and Railroad Retirement Benefits

–       Part of an individual’s social security or equivalent tier 1 railroad retirement benefits can be taxable if already received.

SSI (Supplemental Security Income) is not considered as taxable income.

Taxable Benefits for People with disabilities

If an individual is not receiving any other income except social security or tier 1 equivalent railroad retirement benefits and other exempted benefits like SSI, there may not be a need to file for an income tax return.

An individual maybe taxed if there is an additional income on top of the social security and tier 1 equivalent railroad benefits and all other tax exempted benefits amounting to:

–       More than $25,000 (Head of the family, qualified widow(er), single)

–       More than $25,000 (Married – separate filing, not living with spouse for the entire year of 2010)

–       More than $30,000 (Married – joint filing)

–       $0 (Married – separate filing, living with spouse for the entire year of 2010).

Disability Pensions

–       If retirement is due to disability, any disability pension received from an employer funded plan/arrangement must be declared as income and is considered taxable.

–       These must be indicated on line 7 of Form 1040 or Form 1040A and has to be declared as wages.

–       Entitlement to tax credits are available if an individual has been permanently and totally disabled upon retirement.

–       Any pension or annuity received starting on the day after an individual has reached minimum retirement age is considered taxable. This income is to be declared on lines 16a and 16b of Form 1040 or on lines 12a and 12b Form 1040A.

Military and Government Pensions

Disability pensions are usually considered taxable but this does not include military and government disability pensions.

It is best to consult a good tax attorney to advise you on what exemptions are applicable to you if you are an individual/person with disability.


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