Taxes may not be the most exciting subject to read about, but checking out these tips could help save you a few bucks this year.
Everyone’s familiar with that old saying, “There is nothing certain in life except death and taxes.” Since this is the time of year when people start pulling together pay stubs, receipts and other documentation to prepare for tax filing season, it seems like a good opportunity to remind PN readers of the many provisions in the tax code meant to aid veterans and people with disabilities. Although discussions of taxes are sometimes enough to put people to sleep, being mindful of these policies can result in savings and additional money in your pocket come April 15.
Several of these provisions are aimed broadly at assisting people with disabilities in attaining greater levels of economic self-sufficiency, either through incentives to businesses to hire them or by off-setting some of the costs of living with a disability. These include the Work Opportunity Tax Credit (WOTC), deductions for medical expenses and tax-favored ABLE savings accounts. Other parts of the code were created to help businesses make their establishments more accessible to people with disabilities. These are the Disabled Access Tax Credit and Architectural and Transportation Barrier Removal Tax Deduction.
Still other Internal Revenue Service (IRS) policies and programs are targeted specifically to veterans with disabilities, such as the Combat-Injured Veterans Tax Fairness Act of 2016 and free tax preparation and financial coaching for veterans and their families.
Individual Tax Benefits
Two important tax benefits for individuals with disabilities are the medical expense deduction and, for those whose disabilities were acquired prior to age 26, the ABLE savings account. Details about these and many other helpful tax policies can be found in IRS Publication 907 (2017), Tax Highlights for Persons with Disabilities.
Medical Expense Deduction: The Tax Cuts and Jobs Act of 2017 included a temporary enhancement of this deduction for people facing costly medical bills and other health care-related spending. All taxpayers who itemize their deductions will be able to write off qualifying medical expenses that exceed 7.5% of their adjusted gross income (AGI) for tax years 2017 and 2018. After that, the threshold for this write-off returns to 10% of your AGI.
While the medical-expense deduction is one of the few tax breaks for individual taxpayers retained in the new tax law, it’s important to remember it’s only available to those who itemize. And for itemizing to make financial sense, the value of all deductions needs to exceed the standard deduction.
IRS Publication 502 goes into detail concerning the types of expenses that a taxpayer can deduct. Qualified expenditures range from the typical medical expenses to home modifications, certain durable medical equipment, long-term care insurance and service animal purchase, training and maintenance.
According to that publication, persons with disabilities can take a business deduction for expenses that are necessary for them to be able to work. If they do take this business deduction for these impairment-related work expenses, these aren’t subject to the limit that applies to medical expenses.
ABLE Savings Accounts: These tax-favored savings accounts were created with the signing of the Achieving a Better Life Experience (ABLE) Act of 2014 for eligible blind people or individuals with disabilities, who are the designated beneficiaries and owners of the accounts.
The account is used for qualified disability expenses, and its assets are disregarded for purposes of determining eligibility for benefits under Supplemental Security Income (SSI) and certain other means-tested federal programs.
Business Tax Incentives
Work Opportunity Tax Credit: This tax credit is available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.
Among these targeted groups are persons with disabilities who have been referred to the employer by a state vocational rehabilitation agency, recipients of SSI and certain qualified veterans. Included in that latter category are veterans on food stamps, those experiencing long-term unemployment and service-connected disabled veterans who have been unemployed for at least six months in the one-year period prior to the hiring date.
Disabled Access Tax Credit: This allows eligible small businesses to take a business tax credit of up to $5,000 each year for accessibility-related expenses. Use of this credit is tied to compliance with the Americans with Disabilities Act (ADA), whether it’s for equipment purchase, provision of communications assistance or architectural barrier removal. Expenditures for new construction or for items that aren’t needed to accomplish ADA accessibility are not eligible. Businesses interested in claiming this credit can find details in IRS Form 8826, titled Disabled Access Credit.
Barrier Removal Deduction: This tax incentive pre-dates the ADA and allows businesses of any size to claim as a current deduction the costs of eligible architectural and transportation barrier removal efforts up to $15,000 annually.
Qualified expenses include removal of existing architectural barriers such as steps, narrow doors, inaccessible parking spaces or inaccessible toilet facilities or transportation vehicles. Expenses of new construction or comprehensive renovation of a facility or vehicle or in the normal replacement of depreciable property are not included in this deduction.
Chapter 7 of IRS Publication 535, Business Expenses, outlines the criteria for use of this deduction.
Disabled Veterans’ Tax Benefits
Most veterans with disabilities understand their service-connected disability compensation isn’t considered taxable income. However, the IRS has an entire website devoted to additional benefits and services that are available to veterans and their families at irs.gov/individuals/information-for-veterans.
Among the programs highlighted are the Combat-Injured Veterans Tax Fairness Act of 2016. Under this law, veterans who sustain combat-related injuries and are separated from the military aren’t to be taxed on the one-time lump sum disability severance payment they receive from the Department of Defense.
This webpage also explains how veterans may be eligible to claim a federal tax refund based on an increase in the veteran’s percentage of disability from the Department of Veterans Affairs (VA), or the veteran applying for and being granted Combat-Related Special Compensation, after an award for Concurrent Retirement and Disability.
Another IRS website at irs.gov/individuals/military/special-tax-considerations-for-veterans contains links to information about taxes and VA pension and proper reporting of military disability retirement income.
Not surprisingly, many of these tax provisions are complicated and multi-layered. It’s always recommended that veterans and their families seek the advice of competent tax professionals about claiming credits or deductions to avoid becoming subject to interest and/or penalty charges.
Tax Legislation & The 116th Congress
A number of these credits and deductions were targeted for elimination in the 2017 debate over tax reform or were the subject of efforts to modernize their effectiveness in the 115th Congress.
In the new Congress, several members have expressed interest in revisiting some aspects of the 2017 tax law. Paralyzed Veterans of America (PVA) anticipates following any tax proposals considered by the Ways and Means Committee to ensure the preservation of provisions that benefit veterans and people with disabilities. PVA also plans to support measures that will improve the value of these tax incentives for individuals with disabilities and businesses that use them.
For example, while the WOTC is an important tool available to encourage businesses to hire veterans and people with disabilities, Congress has frequently allowed its authorization to lapse, leading many companies to hesitate using it.
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) retroactively reauthorized WOTC for a five-year period, from Jan. 1, 2015, to Dec. 31, 2019. Without another extension or permanent authorization by the end of this year, the WOTC will once again be at risk of disappearing.
The Disability Employment Incentive Act (DEIA) is a package of improvements to disability-related tax incentives that PVA supported last year. It’s expected to be introduced in this Congress by Sen. Robert “Bob” Casey (D-Pa.). The DEIA would increase the WOTC for employers hiring people with disabilities through state vocational rehabilitation agencies or who are Social Security disability beneficiaries.
It would also increase the Disabled Access Tax Credit from $5,000 to $10,000 and make it available to more small businesses. Finally, the bill would increase the amount of expenses that a business can deduct under the architectural and transportation barrier removal tax deduction to $30,000.
Susan Prokop is PVA’s senior associate advocacy director and has more than 30 years of experience in domestic policy issues affecting seniors, veterans and people with disabilities.
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