I received a notice from the IRS about  “Tax Benefits for Disabled Taxpayers” and the first thing it mentioned was an increased exemption for blind taxpayers.  I found it a little odd because in other parts of the tax code, blind doesn’t constitute a disability so go figure. 

In IRS speak, disabled generally means you can’t work and are unable to care for yourself.  But, there are plenty of people who are in wheel chairs, deaf, blind, or with some other “disability” but are perfectly capable or working and fending for themselves.  Confused?  Me too.  This blog post is going to cover tax issues for persons with any type of physical or mental impairment.

So first,  blindness:  there is an additional standard deduction for being blind or partly blind.  If you are partly blind, you must get a certified statement from an eye doctor stating that your corrected vision is not better than 20/200 in the better eye, or that your field of vision is not more than 20 degrees.  Keep the statement in your records.  Of course, if itemizing your deductions gives you a better return, do that instead.

 Disability related payments:  certain disability related payments such as Veterans Administration (VA) disability benefits and Supplemental Security Income (SSI) are excluded from gross income on your income taxes.   If you receive employer provided disability payments, those are taxable. 

Impairment Related Work Expenses:  If you have a physical or mental disability that limits your employment; you may be able to claim business expenses in connection to your workplace.  This is different from the regular employee business expense deduction because you don’t have to meet the requirement that the expense exceed 2% of your gross income.  An example of this kind of expense would be a special computer screen for someone with a vision impairment.  The key requirement here is that the expenses must be necessary for the taxpayer to work.

Medical Expenses:  If you itemize your deductions, you may be able to deduct your medical expenses.  This is true for anyone whether they have a disability or not.  What’s important here is that you can include costs for making your home more accessible as a medical expense.   An example of this would be installing ramps or widening doorways to your home.  If the improvements you make increase the value of your home, they are not deductible as a medical expense.  An example of something that probably wouldn’t be deductible would be a heated spa; while it would be beneficial to have the heated spa to alleviate pain, the spa would also increase the resale value of the home and therefore couldn’t be claimed as a medical expense. 

Earned Income Tax Credit:  EITC is available to disabled taxpayers as well as to parents of a child with a disability.  If you retired on disability and receive taxable benefits under your employer’s disability retirement plan, that’s considered to be earned income for purposes of the Earned Income Tax Credit until you reach retirement age.  EITC not only reduces your tax liability, but it may even result in a refund.

It’s important to know that EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.  

 If you have a disabled child, there is no age limitation for EITC.

Also, taxpayers who pay someone to care for their dependent or spouse so they can work or look for work may be able to claim the Child or Dependent Care Credit.  There is no age limit to this credit if the child or spouse is unable to care for themselves.

For more information about tax benefits for persons with different abilities, check out IRS publication 907 http://www.irs.gov/publications/p907/ar01.html