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Tax Tip of the Week
For the week of
April 28, 2003

The disabled get tax breaks

A variety of tax breaks are available to help disabled taxpayers cope with the financial burdens of disability. Tax relief falls into three categories. First, many types of disability payments are exempt from taxes. Second, disabled taxpayers can deduct a number of special expenditures related to their disability. Finally, some special tax credits are available. Businesses that improve access for the disabled are also eligible for tax credits and deductions.

Payments excluded from income. Many types of payment received for disability are excluded from taxable income. These include workers compensation, VA payments, insurance payments for physical disability, and payments under an employer's health and accident plan. Damage awards for pain and suffering for personal injury are tax-free. However, awards for punitive damages or emotional distress are generally taxable. Social security disability payments are treated like all social security payments and may be taxed, depending on income.

Disability-related deductions. All taxpayers can deduct medical expenses to the extent they exceed 7.5% of adjusted gross income. Those with disabilities can deduct items such as wheelchairs, guide dogs, and special telephones. They can also deduct the cost of attending special schools or tuition to learn skills such as Braille or sign language.

Disabled taxpayers can usually deduct some or all of the cost of home improvements made to relieve their disability. This covers items such as access ramps, wider doorways, stair lifts, or even a special air filtering system.

Tax credits. A disabled taxpayer who is permanently and totally disabled is eligible for a credit of 15% of disability income, subject to various adjustments. Caregivers for a disabled taxpayer might also qualify to claim the dependent care credit.

Business tax breaks. Businesses are eligible for both special deductions and tax credits for the costs of making their premises or vehicles more accessible to the handicapped.

For more information about tax breaks for the disabled, contact our office.

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