Tax Break Reminders for the Disabled and Special Needs Families

By Stephen J. Silverberg
New York Elder Law Attorney

Whether they’re working or not, people with disabilities and their caregivers often have higher costs associated with medical care or daily living, so the current tax code makes some of these costs deductible.

The Centers for Disease Control and Prevention found in 2015 that 53 million adults in the U.S. (about 20%) live with a disability. As tax day approaches, Yahoo Finance offers tax strategies for people with disabilities and their caregivers to consider in[ “8 Tax Tips for People With Disabilities (and Their Caregivers).”

ABLE accounts. These accounts are newer savings vehicles for those who become blind or disabled before the age of 26. The accounts are like 529 college savings accounts—the account grows tax-free and can be spent on eligible expenses with no taxes. Contributions to these accounts don’t qualify for a federal tax credit or deduction.  However, Iowa, Michigan, and Nebraska offer state tax benefits for contributingClick here for a blog post on New York State’s ABLE Accounts.

Take a higher standard deduction. Many deductions or credits require that you itemize, but if you take the standard deduction, you may qualify for a higher one, if you or your spouse is blind. In the 2016 tax year, the standard deduction for single or married filing separately is $6,300. That amount increases to $7,850 if the filer is blind or over the age of 65 or $9,400 if the filer is both blind and over the age of 65.

Child and dependent care credit. If you pay for day care or other care for a dependent, while you work or are seeking employment for work, this credit can decrease your taxes by up to $3,000 per dependent or a maximum of $6,000 for all dependents. This credit can also pay for adult day care for a spouse or other dependent, who is physically or mentally not able to care for themselves, but you must itemize to get this credit.

Disability credit. People who receive stable disability income and are retired on permanent and total disability or who are age 65 or older may qualify for the Credit for the Elderly or the Disabled on their own tax return, which is between $3,750 and $7,500. However, income limits are based on the filing status and adjusted gross income.

Disabled person as a dependent. Typically, you can’t claim a child as a dependent after age 19, or 24 if the child is a student. But a disabled child or other relative can be claimed as a dependent at any age, if you provide at least half their support.

Deduct medical expenses. If you itemize, and your family’s medical and dental expenses in a calendar year are over 10% of your adjusted gross income (7.5% if you or your spouse is age 65 or older), you can deduct the excess amount. This isn’t just for those with special needs, but parents with special needs children have a lot of out-of-pocket expenses.

Adoption of a child with special needs. Families that adopt a child who is a U.S. resident or citizen and whose state welfare agency deems them to have special needs, will usually be eligible for the maximum adoption credit of $13,460 per child in the year the adoption is finalized. Income limits apply, but in adoptions involving a child with special needs, the adoptive parents can claim the maximum credit regardless of whether they had qualified expenses of $13,460.

Declare disability payments. These aren’t always taxable income, since it depends on the situation. Review what type of disability benefits are being received and see if they’re subject to taxes. As an example, the IRS says that Veteran Affairs disability benefits shouldn’t be included in gross income, but if you receive long-term disability benefits from a plan paid for by your employer, the IRS says those can be taxable. Children who get disability benefits can also create confusion when filing returns, since some parents whose children receive payments from Social Security Disability Insurance think they must report that income on their own tax return. This is not true. It is reported on the child’s tax return if the child has a filing requirement, not the parent’s return. If the child doesn’t get income from other sources, their benefits are probably not taxable.

If you have questions, please call my office at 516-307-1236.

About the Author
Stephen J. Silverberg is nationally recognized as a leader in the areas of estate planning, estate administration, asset preservation planning, and elder law. He is a past president of the prestigious National Academy of Elder Law Attorneys (NAELA), and a founding member and past president of the New York State chapter of NAELA.
Posted in Tax