US Tax System Credit and Benefits –
Opportunities and Challenges For Persons With
Disabilities, Their Families and Their
Employers
TAX FACTS
Audio Conference Call
March 16, 2005
Tax Benefits and Credits Are Available
to Persons With Disabilities

The US Tax Code Provides Numerous Tax Benefits
And Tax Credits Created For and/or That Contain
Special Provisions For Persons With Disabilities.
These Benefits And Credits Are Available To:

Qualifying Taxpayers With Disabilities

Parents Of A Child (Or Children) With A Disability
(Or Disabilities)

Employers Who Hire Employees With Disabilities

Businesses Or Other Entities Wishing To
Accommodate People With Disabilities
Tax Benefits and Credits Are Available
to Persons With Disabilities (continued)

For Taxpayers With Disabilities
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For Parents Of A Child With A Disability
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Medical Expenses
Impairment-related Work Expenses
Credit For The Elderly Or Disabled
Medical Expenses
Child and Dependent Care Credit
Earned Income Tax Credit
For Employers And Businesses

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Disabled Access Credit
Architectural/Transportation Tax Deduction
Work Opportunity Credit
Tax Benefits and Credits Are Available
to Persons With Disabilities (continued)

Tax Benefits – Also Referred To As Expenses,
Deductions And Exemptions. These Amounts
Generally (Excluding Itemized Deductions) Are
Used To Reduce A Taxpayer’s Taxable Income On
A Dollar-for-dollar Basis. Once A Final Taxable
Income Amount Is Determined, The Taxpayer’s
Tax Liability (Before Consideration Of Payments
And Tax Credits) Is Determined Based On The
Taxable Income Amount.
Tax Benefits and Credits Are Available
to Persons With Disabilities (continued)

Tax Credit – Tax Credits Are Used To Reduce A
Taxpayer’s Tax Liability On A Dollar-by-dollar
Basis. Generally, Tax Credits Can Be Used To
The Extent Of An Existing Tax Liability (I.E.
Reducing Tax Liability To Zero). In Special
Situations, Including The Earned Income Tax
Credit (Fully) And The Child Tax Credit (Partially)
The Remaining Tax Credits Available After Taxable
Liability Is Brought To Zero Can Be Refunded
Directly To The Taxpayer.
Tax Benefits and Credits Are Available
to Persons With Disabilities (continued)

Application Of Tax Law To Your Individual Facts
And Circumstances Can Be Challenging, Please
Utilize The Resource Materials Identified At The
End Of This Presentation To Help You Determine
The Proper Application In Your Individual Situation

Where Appropriate, Please Consult With Your
Local Volunteer Income Tax Assistance (VITA) Site
Or A Tax Professional
Definition of Permanent and Total
Disability For Tax Purposes (in general)

For Tax Purposes, An Individual Is
Permanently And Totally Disabled If He
(She) Is Unable To Engage In Any
Substantial Gainful Activity By Reason Of
Any Medically Determinable Physical Or
Mental Impairment Which Can Be Expected
To Result In Death Or Which Has Lasted Or
Can Be Expected To Last For A Continuous
Period Of Not Less Than 12 Months.

Internal Revenue Code Section 22(e)(3)
Medical and Dental Expenses

Medical And Dental Expenses Can Be Deducted For
The Taxpayer, Their Spouse And Their Dependents.

Medical Expenses Include Payments Made For The
Diagnosis, Cure, Mitigation, Treatment, Or Prevention
Of Disease And For Treatment Affecting Any Part Or
Function Of The Body.

Medical Expenses Include The Cost Of Equipment,
Supplies And Diagnostic Devices Needed For These
Purposes

Medical Expenses Also Include The Cost Of
Transportation For Needed Medical Care And The
Payments For Medical Insurance
Medical and Dental Expenses (continued)

The Following List Highlights Some Of The Allowable Medical
Expenses Related To Special Items And Equipment Related To A
Disability:
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Braille Books And Magazines – Deduction Allowed For Cost In
Excess Of The Regular Priced Editions
Car Expenses – Cost Of Special Hand Controls And Other
Special Equipment Installed In A Car For The Use Of A Person
With A Disability
Guide Dog Or Other Animal – Cost And Care Of Trained
Animals Used To Assist Persons With Disabilities
Hearing Aids And Eyeglasses – Includes Cost Of Batteries For
Operation Of The Hearing Aid
Wheelchair Or Autoette – Include Cost And Maintenance
Expenses In Medical Expenses When Used Mainly For The
Relief Of Sickness Or Disability
Medical and Dental Expenses (continued)

The Following List Highlights Some Of The Allowable Medical
Expenses Related To Special Items And Equipment Related To A
Disability (Continued):
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Special Education – Medical Expenses Can Include Fees Paid
On A Doctor’s Recommendation For A Child’s Tutoring By A
Teacher Who Is Specially Trained And Qualified To Work With
Children Who Have Learning Disabilities Caused By Mental Or
Physical Impairments.
Telephone Equipment – Cost And Repair Of Special Telephone
Equipment That Allows A Hearing-impaired Person
Communicate Over A Regular Telephone Line.
Television Equipment – Cost Of Equipment That Displays The
Audio Part Of Television Programs As Subtitles For Hearingimpaired Persons.
Medical and Dental Expenses (continued)

The Following List Highlights Some Of The Allowable Medical
Expenses Related To Special Items And Equipment Related To A
Disability (Continued):

Capital Expenses For A Home – Medical Expenses May Include
Amounts Paid For Special Equipment Installed In A Home Or For
Improvements, If Their Main Purpose Is Medical Care For The
Taxpayer, Their Spouse Or Their Dependent And The Improvements
Do Not Add Value To The Home. If The Improvements Do Increase
The Value Of The Home, The Deductible Amount Of The Cost Is
Reduced By The Increased Value Of The Home. Examples Of
Special Equipment Or Improvements Are:
 Constructing Entrance Or Exit Ramps
 Widening Doorways Or Hallways
 Adding Handrails Or Grab Bars (Whether Or Not In Bathrooms)
 Installing Porch Lifts And Other Forms Of Lifts
Medical and Dental Expenses (continued)

Medical And Dental Expenses Are Claimed By
Utilizing Schedule A, Itemized Deductions

Can Deduct Only The Part Of Medical And Dental
Expenses That Are More Than 7.5% Of Adjusted
Gross Income (Adjusted Gross Income Is Total
Income Less Certain Qualified Expenses, Such As
IRA Deductions, Moving Expenses, Etc.)

Itemized Deductions Claimed On The Return Must
Be In Access Of Allowable Standard Deduction In
Order To Get The “Benefit” Of Claiming Medical
Expenses On Individual Tax Return (See Discussion On
Itemized Deduction Versus Standard Deduction On Following Pages)
Itemized Deductions versus
Standard Deductions
 Itemized Deductions Are Amounts For Certain
Expenses Used To Reduce Your Taxable Income.
Major Items Are:
 Medical Expenses
 Mortgage Interest And Real Estate Taxes
 Charitable Contributions
 Standard Deduction Is The Benefit That Eliminates
The Need For Many Taxpayers To Itemize Actual
Deductions
 In Most Cases, Your Federal Income Tax Liability Will
Be Less If You Claim The Larger Of Your Actual
Itemized Deductions Or The Standard Deduction
Standard Deduction Amounts For
Tax Year 2004
 Single
$6,050
 $7,250 (Single and Blind)
 Married Filing Joint
 $10,650
 $11,600 (Married & One Spouse Blind)
 $12,550 (Married & Both Spouses Blind)
 Head of Household
 $8,350
 $9,550 (Head of Household and Blind)

Standard Deduction Amounts For
Tax Year 2004 (continued)
 For purposes of this deduction, you qualify is you are
totally blind or partially blind at the end of the year. If you
are partially blind, you will need a certified statement
from eye doctor or registered optometrist stating:
 You cannot see better than 20/200 in your better eye
with glasses or contacts or
 Your field of vision is 20 degrees or less
Impairment-Related Work Expenses

An Employee Who Has A Physical Or Mental
Disability That Limits Their Being Employed, Or A
Physical Or Mental Impairment That Substantially
Limits One Or More Of Their Major Life Activities (I.E.
Walking, Speaking, Breathing, Learning, Etc.) Can
Deduct Impairment-related Work Expenses

Impairment-related Work Expenses Are Ordinary And
Necessary Business Expenses For Attendant Care
Services At A Place Of Employment And Other
Expenses In Connection With The Place Of
Employment That Are Necessary To Allow A Person
With Disability To Be Able To Be Employed
Credit For The Elderly Or Disabled


Credit Is Potentially Available To:

Individuals Who Are Either Age 65 Or Older, Or

Individuals Under The Age Of 65 And Retired On
Permanent And Total Disability
To Qualify For The Credit If You Are Under Age 65

Must Be Retired On Permanent And Total Disability

Must Have Received Taxable Disability Income

Must Not Have Reached The Age When Your
Employer’s Retirement Program Would Have
Required You To Retire
Credit For The Elderly Or The Disabled

Definitions And Rules
 Permanent And Total Disability - Cannot Engage
In Substantial Gainful Activity Because Of Your
Physical Or Mental Condition. Requires Physician
Statement.
 Substantial Gainful Activity – The Performance Of
Significant Duties Over A Reasonable Period Of
Time While Working For Pay Or Profit.
 Taxable Disability Income – Disability Income
Must Meet Both Of The Following Requirements:
 Must Be Paid Under An Employer’s
Accident/Health/Pension Plan
 Must Be Included In Income As Wages For The
Time Absent From Work Because Of
Permanent And Total Disability
Credit For The Elderly Or The Disabled

Credit Amount Is Computed By Utilizing
Schedule R For 1040 Returns Or Schedule 3
For 1040A Returns

Maximum Credit Amount For 2004 Is $1,125

Determination Of Allowable Credit Amount Is
Impacted By:

Income Limitations
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Nontaxable Pensions And Benefits

Filing Status
Child and Dependent Care Credit

A Credit May Be Available If You Pay Qualified
Expenses To Care For One (Or More) Of The
Following Qualified Individuals That Allow You To
Work Or Look For Work:

A Dependent Who Is Under The Age Of 13

A Spouse Who Was Physically Or Mentally Not
Able To Care For Himself Or Herself

A Dependent Who Was Physically Or Mentally
Not Able To Care For Himself Or Herself
(Regardless Of Age)
Child and Dependent Care Credit

Tests To Claim The Credit:
 The Care Must Be For One Or More Qualifying
Children
 Must Keep Up A Home That You Live In With The
Qualifying Person(s)
 Must Have Earned Income During The Year (In
The Case Of A Married Couple, Both Spouses
Must Have Earned Income)
 Child And Dependent Care Expenses Must Be
Incurred So You Can Work Or Look For Work
 Payments For Child And Dependent Care Must Be
Made To Someone You Can Not Claim As
Dependent
 Filing Status Can Not Be Married Filing Separately
Child and Dependent Care Credit

Definitions And Rules

Physically Or Mentally Unable To Care For
Oneself Means The Qualifying Person Cannot
Dress, Clean Or Feed Themselves Because Of
Physical Or Mental Disabilities.

Individuals Who Must Have Constant
Attention/Care To Prevent Themselves From
Injuring Themselves Or Others Are Also
Considered Not Able To Care For Themselves.

Qualified Expenses For Child And Dependent
Care Do Not Include Amounts You Pay For Food,
Clothing, Education And Entertainment.
Expenses To Attend First Grade Or Higher Grade
Are Not Expenses For Care.
Child and Dependent Care Credit

Claiming The Credit

Utilize Form 2441, Child And Dependent Care Expenses,
For Form 1040 And Schedule 2 For Form 1040A

Limitations Are Placed On Eligible Work-related Child
And Dependent Care Expenses To Be Utilized For
Determining The Allowable Credit
 $3,000 For One Qualifying Individual
 $6,000 For Two Or More Qualifying Individuals

Credit Can Be As Much As 35% Of Qualified Workrelated Child And Dependent Care Expenses For
Individuals With Adjusted Gross Income Of $15,000 Or
Less And Reduces To 20% For Persons With Adjusted
Gross Income Of $43,000 Or More

Maximum Credit Is $1,050 For One Qualifying Individual
And $2,100 For Two Or More Qualifying Individuals
Earned Income Tax Credit

The Earned Income Tax Credit (Or EITC) Is A Tax
Credit Available To Individuals Who Work And Have
Income Less Than $34,458 In 2004 ($35,458 For
Taxpayers Married Filing Jointly)

The Earned Income Tax Credit Is A Refundable Tax
Credit! That Means If The Amount Of EITC An
Individual Is Entitled To Is Greater Than Their Tax
Liability, That Individual Would Receive A Refund
From The IRS For The EITC In Excess Of Their Tax
Liability

Example – If A Taxpayer Is Entitled To An EITC
Of $1,700 And Has A Tax Liability Of $500, That
Taxpayer Would Receive A Refund In The
Amount Of $1,200
Earned Income Tax Credit

The Amount Of Earned Income Tax Credit Available Is
Dependent Upon The Amount Of Earned Income And
Whether Or Not The Individual Has A Qualifying Child:

For An Individual (Or Couple) With Two Or More
Qualifying Children, The Maximum Adjusted Gross
Income Allowed Is $34,458 ($35,458 If Married Filing
Jointly) And The Maximum Allowable Credit Is $4,300

For An Individual (Or Couple) With One Qualifying Child,
The Maximum Adjusted Gross Income Allowed Is $30,338
($31,338 If Married Filing Jointly) And The Maximum
Allowable Credit Is $2,604

For An Individual (Or Couple) With No Qualifying Child
Who Are Between The Ages Of 25 And 64, The Maximum
Adjusted Gross Income Allowed Is $11,490 ($12,490 If
Married Filing Jointly) And The Maximum Allowable Credit
Is $390
Earned Income Tax Credit

Earned Income

Most Disability Related Benefits (Including Social
Security Disability Insurance, SSI, Military Disability
Pensions And Payments From Individually Purchased
Disability Insurance Policies) Are Not Counted As
Earned Income For Purposes Of The EITC.

Long-term, Employer-paid Disability Benefits Paid To
An Individual Under The Minimum Retirement Age
Qualifies As Earned Income For EITC Purposes,
Even If The Individual Did Not Work During The Tax
Year In Question.

Earned Income Can Be Earned By Only One Spouse
To Qualify For The EITC and Can Be Generated By
Part-time Or Full-time Employment
Earned Income Tax Credit

Qualifying Child

A Child Is A Qualifying Child For EITC Purposes If They Meet
The Following Three Tests
 Relationship – Can Be Son, Daughter, Brother, Sister, Descendant
(I.E. Niece, Nephew, Etc.), Foster Child, Etc.
 Age – At The End Of 2004, The Child Was Either:
 Under The Age Of 19,
 Under The Age Of 24 And Full-time Student
 Permanently And Totally Disabled At Any Time During 2004,
Regardless Of Age
 Residency – Child Lived With Individual In The United States For
More Than Six Months In 2004


Qualifying Child Does Not Have To Be Your Dependent,
Unless They Are Married
Qualifying Child Must Have A Valid Social Security Number
Earned Income Tax Credit

Calculating The Available Earned Income
Tax Credit By Utilizing The EITC Worksheet
For Form 1040, 1040A, Or 1040EZ

If There Is A Qualifying Child, Must Complete
Schedule EIC And Attach The Form To The
Tax Return
Earned Income Tax Credit

Impact Of Earned Income Tax Credit On Eligibility For
Other Benefits

Federal Law Generally Excludes Counting EITC (As Well As
The Child Tax Credit (CTC)) As Additional Income In
Determining Eligibility For Other Federal Public Benefits,
Including SSI, Medicaid, Veteran’s Benefits, Head Start, Etc.

EITC Refunds Are Not Considered Employment Income And
Have No Impact On Substantial Gain Activity (SGA) Levels

For Resource Testing, Generally EITC And CTC Refunds If
Saved Are Not Counted Toward Dollar Limits On Resources
During The Month Received And The Following Month
 For SSI Purposes, EITC And CTC Refunds Are Excluded From
Resources For Nine Months Following The Month The Refund Is
Received
 For Medicaid Purposes, Some States Have Voluntarily Increased
The Allowable Holding Period For EITC Refunds
Disabled Access Credit

Internal Revenue Code 44 Provides For A
Nonrefundable Disabled Access Tax Credit For An
Eligible Small Business That Incurs Eligible Access
Expenditures That Provide Access To Persons
With Disabilities.

The Amount Of The Tax Credit Is Equal To 50% Of
The Eligible Access Expenditures In A Year That
Exceed $250 But Are Less Than $10,250. Thus
The Maximum Amount Of Credit Is $5,000 Per
Year.

An Eligible Small Business May Take The Disabled
Access Credit Each And Every Year It Makes
Eligible Access Expenditures.
Disabled Access Credit

Definitions

Eligible Small Business – A Business With
Either:
 Gross Receipts Of $1 Million Or Less In
The Preceding Tax Year, Or
 30 Or Fewer Full—time Employees During
The Previous Tax Year

Eligible Access Expenditures – Amounts Paid
Or Incurred By An Eligible Small Business To
Comply With The Applicable Requirements Of
The Americans With Disabilities ACT (ADA)
Disabled Access Credit

Eligible Access Expenditures


Include Amounts Pair Or Incurred To:
 Remove Architectural, Communication, Physical Or
Transportation Barriers That Prevent A Business From Being
Accessible To, Or Usable By, Individuals With Disabilities
 Provide Qualified Readers, Taped Texts And Other Effective
Methods Of Making Materials Accessible To People With
Visual Impairments
 Provide Qualified Interpreters Or Other Effective Methods Of
Making Orally Delivered Materials Available To Individuals
With Visual Impairments
 Acquire Or Modify Equipment Or Devices For Individuals With
Disabilities
 Provide Other Similar Services, Modifications, Materials Or
Equipment
Expenses In Conjunction With New Construction Are Not
Eligible
Architectural/Transportation Tax
Deduction – Barrier Removal Costs

Internal Revenue Code Section 190 Created A
Special Tax Deduction To Encourage Individual And
Corporate Employers To Remove Architectural And
Transportational Barriers To The Mobility Of Persons
With Disabilities And The Elderly

All Businesses Are Eligible To Take A Tax Deduction
Of Up To $15,000 A Year For Qualified Expenses
Incurred To Remove Barriers For Persons With
Disabilities Or The Elderly

Amounts In Excess Of The $15,000 Maximum Annual
Deduction May Be Depreciated
Architectural/Transportation Tax
Deduction – Barrier Removal Costs

Deduction Is Allowed For The Costs Of Making A
Facility Or Public Transportation Vehicle More
Accessible To And Usable By Persons With
Disabilities Or The Elderly.

Facility – Is All Or Any Part Of Buildings, Structures,
Equipment, Roads, Walks, Parking Lots Or Similar
Real Or Personal Property.

Public Transportation Vehicle – Is A Vehicle, Such As
A Bus Or Railroad Car, That Provides Transportation
Services To The Public (Including Services For Your
Customers, Even If Not In The Business Of Providing
Transportation Services.
Architectural/Transportation Tax
Deduction – Barrier Removal Costs

What Expenses Are Covered?

Barrier Removal Costs Must Meet The Guidelines And
Requirements Issued By The Architectural And
Transportation Barriers Compliance Board Under The
Americans With Disabilities Act (ADA)

Examples Of Deductible Costs:
 Providing Accessible Parking Spaces, Ramps And Curb Cuts,
 Providing Telephone, Water Fountains, And Restrooms Which
Are Accessible To Persons Using Wheelchairs,
 Making Walkways At Least 48 Inches Wide

What Expenses Are Not Covered?
 Deduction Can Not Be Used For Expenses Incurred For
New Construction, Or For A Complete Renovation Of A
Facility Or Public Transportation Vehicle Or For The
Normal Replacement Of Depreciable Property
Architectural/Transportation Tax
Deduction – Barrier Removal Costs

The Architectural/Transportation Tax Deduction Under
IRC Section 190 And The Disabled Access Credit
Under IRC Section 44 Maybe Used Together In The
Same Tax Year, If The Expenses Meet The
Requirements Of Both Sections.

If You Claim The Disabled Access Credit, You Must
Reduce The Amount You May Deduct Under The
Architectural Tax Deduction By The Amount Of The
Credit Claimed.

For Example, If A Business Spent $12,000 For Qualifying
Access Adaptations, It Would Qualify For A $5,000
Disabled Access Credit And A $7,000
Architectural/Transportation Tax Deduction
Work Opportunity Credit

The Work Opportunity Credit Provides A Tax Credit
For Employers Who Hire Individuals That Are
Members Of Certain Targeted Low-income Groups.

Targeted Low-income Groups Include:

Vocational Rehabilitation Referral

Qualified Supplemental Security Income (SSI)
Recipient

Qualified Recipient of Assistance under Temporary
Assistance for Needy Families (TANF) Veterans

Qualified Food-stamp Recipients

Qualified Summer Youth Employees
Work Opportunity Credit


An individual is not considered a qualified member of a
targeted group unless the applicable state employment
security agency certifies them as a member
Certification requirement can be satisfied by:
 On or before the first day in which the individual
works for the employer, obtain a certification from
state employment security agency that the individual
is a member of a targeted group, or
 On or before the day employment is offered to an
individual, complete Form 8850, Pre-Screening
Notice and Certification Request for the Work
Opportunity Credit, and send it to the state
employment security agency no later than the 21st
day after the individual begins work
Work Opportunity Credit

The Work Opportunity Credit May Be As Much As
40% Of The Qualified First Year Wages Paid To
Qualified Individuals Prior to January 1, 2005




Eligible Employees Must Work 400 Hours (Summer
Youth Employees Must Work At Least 120 Hours) To
Be Subject To The 40% Credit Application
Qualified First Year Wages Are Limited To $6,000 Per
Employee (With A $3,000 Limitation For Summer Youth
Employees)
A Partial Credit Of 25% For Certified Employees Who
Worked At Least 120 Hours, But Less Than 400 Hours
May Be Claimed By The Employer
Work Opportunity Credit Is Claimed By Employer By
Filing Form 5884, Work Opportunity Credit, With Their
Business Tax Return
Additional Sources of Information

Internal Revenue Service website – www.irs.gov

Individual Income Tax Information – IRS
Publication 17 – http://www.irs.gov/pub/irspdf/p17.pdf

Tax Guide for Small Business – IRS Publication
334 - http://www.irs.gov/pub/irs-pdf/p334.pdf

Tax Highlights for Persons with Disabilities –
Publication 907 – http://www.irs.gov/pub/irspdf/p907.pdf
Additional Sources of Information





Medical and Dental Expenses – Publication 502
– http://www.irs.gov/pub/irs-pdf/p502.pdf
Miscellaneous Deductions (including ImpairmentRelated Expenses) – IRS Publication 529 –
http://www.irs.gov/pub/irs-pdf/p529.pdf
Credit for the Elderly or Disabled – IRS
Publication 524 – http://www.irs.gov/pub/irspdf/p524.pdf
Earned Income Tax Credit – IRS Publication 596
– http://www.irs.gov/pub/irs-pdf/p596.pdf
Child and Dependent Care Credit – IRS
Publication 503 – http://www.irs.gov/pub/irspdf/p503.pdf
Additional Sources of Information

Work Opportunity Credit – IRS Publication 334 http://www.irs.gov/pub/irs-pdf/p334.pdf

Disabled Access Credit – IRS Publication 535 http://www.irs.gov/pub/irs-pdf/p535.pdf

Architectural/Transportation Tax Deduction
(Barrier Removal Cost) – IRS Publication 535 http://www.irs.gov/pub/irs-pdf/p535.pdf