Tax Breaks for People Who Are Totally Disabled

Tax credits for the disabled can help offset some medical care expenses.

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State and federal governments offer totally disabled people and their families significant tax breaks. Some of the tax deductions and credits are designed to help lower your tax liability. Others reduce or eliminate your property taxes so you can live in your home tax-free. Before you can take these credits and deductions, a physician must certify that the person is permanently and totally disabled.

Disabled Adult Tax Credit

To qualify for the disabled adult tax credit, you must be permanently and totally disabled when you retired, receive taxable disability income during the tax year and be under the mandatory retirement age. The credit amount is based on your filing status, adjusted gross income and the amount of nontaxable income you receive. The credit phases out as your AGI increases. To take the credit, you need to complete Schedule R and file it, along with your Form 1040 or 1040A federal income tax return.

Disabled Child Tax Credit

The IRS has several tax credits for disabled children that parents can take. Some of the tax credits have different qualifications. There are no age restrictions on the Earned Income Credit as long as your child is permanently and totally disabled. You can take the EIC even if your child receives disability benefits. You also can take the Child and Dependent Care Expenses credit for your disabled child regardless of how old he is. The 13-year old age cut-off does not apply if your child is permanently and totally disabled.

Disabled Veteran Tax Credit

Totally disabled veterans do not pay tax on their Veterans Administration benefits. Along with disability and pension income, VA grants to remodel a veteran’s home to accommodate a wheelchair, modifications made to a motor vehicle and dependent care benefits are also tax-exempt. To qualify for these tax breaks, a veteran must have a 100 percent service-connected disability rating from the VA. Veterans can file VA Form 21-526, Veterans Application for Compensation and/or Pension, to receive their disability rating.

State Disability Tax Credits

Many states have enacted laws designed to reduce the tax burden for totally disabled people. For example, Florida residents who are quadriplegics or totally disabled veterans are exempt from paying property tax on their homestead property. Connecticut provides an exemption for up to $1,000 for their totally and permanently disabled residents. You can go to your state’s department of revenue or property appraiser website for information about the available tax credits for totally disabled people.