Learn About Tax Credits for Disability

Understanding Tax Credits for People With Disabilities

Tax credits are a type of tax benefit that can reduce the amount of federal income tax a person owes to the government. Unlike tax deductions, which lower your taxable income, tax credits directly reduce your tax bill dollar-for-dollar. This makes them particularly valuable for people managing disabilities and the associated medical and support expenses.

For individuals with disabilities, several federal tax credits exist to help offset costs related to their disability status. These credits can apply to various situations: working individuals with disabilities, parents or caregivers supporting family members with disabilities, people who need specific equipment or modifications, and those managing medical expenses. Understanding which credits may apply to your situation requires learning about the specific requirements and purposes of each one.

The IRS (Internal Revenue Service) administers these credits as part of the federal tax code. Each credit has its own rules about income limits, what types of expenses count, and who can claim them. Some credits are refundable, meaning you may receive money back even if you owe no taxes. Others are non-refundable, meaning they can only reduce taxes owed but cannot result in a refund.

Disabilities covered by these credits include physical disabilities, intellectual disabilities, mental health conditions, visual impairments, hearing loss, chronic illnesses, and temporary disabilities that meet specific timeframes. The IRS uses various definitions depending on the credit, so a condition that qualifies for one credit may not qualify for another.

Practical Takeaway: Before exploring specific credits, gather information about your disability status, annual household income, and types of expenses you pay related to your disability. This foundation will help you understand which credits may be relevant to your tax situation.

The Dependent Care Credit and Disability Support

The Dependent Care Credit provides tax relief for families who pay for dependent care services, including childcare and adult daycare. For families with a child or adult family member with a disability, this credit can help offset costs for specialized care facilities, in-home care providers, after-school programs, and residential care during work hours.

To understand if this credit might apply, consider what counts as dependent care expenses. These include costs for an adult daycare program specifically designed for people with disabilities, fees for a care provider who watches a dependent with a disability during work hours, and costs for a care facility or program that enables you to work or pursue education. The dependent must be either your child under age 13, a disabled dependent of any age, or a spouse who is unable to care for themselves.

The amount of the credit depends on your adjusted gross income (AGI). In 2024, families with an AGI of $15,000 or less can claim up to 35 percent of qualifying expenses, with the maximum expenses being $3,000 for one dependent or $6,000 for two or more dependents. As income increases, the percentage decreases. Families with AGI over $43,000 can claim 20 percent of expenses. This means the maximum credit ranges from $600 to $1,200 for one dependent or $1,200 to $2,400 for multiple dependents.

Important limitations apply. The expenses must be necessary to enable you to work or look for work. Summer camp and school tuition do not count, even if the school serves students with disabilities. Additionally, you cannot claim expenses paid to a dependent, spouse, or someone under age 19 who is your child.

Practical Takeaway: If you pay for care services for a dependent with a disability while you work, document all related expenses throughout the year and keep receipts. On your tax form, you will report the care provider's name, address, and tax ID number, so gather this information before tax filing season.

The Child and Dependent Care Credit vs. The Child Tax Credit

Families supporting children with disabilities may benefit from either the Dependent Care Credit or the Child Tax Credit, but these are different benefits serving different purposes. Understanding the difference helps ensure you claim the benefit that works best for your situation.

The Child Tax Credit provides a flat amount per qualifying child and does not require you to have paid for care or other specific expenses. As of 2024, this credit provides up to $2,000 per child under age 17. A child with a disability may still qualify for this credit if they meet the age requirement, are claimed as your dependent, have a valid Social Security number, and are your biological child, adopted child, or stepchild. This credit phases out for higher-income families but is available to many working families.

In contrast, the Dependent Care Credit only applies when you have paid for actual care expenses. You cannot claim both credits for the same child in the same year for the same expenses. However, you could potentially use the Child Tax Credit if you do not have significant care expenses, and use the Dependent Care Credit in another year when you do have qualifying expenses.

The Child Tax Credit is also partially refundable. This means that even if your tax bill is zero, you may still receive part of the credit as a refund, up to $1,700 per child in 2024. This makes it particularly valuable for lower-income families. The Dependent Care Credit is non-refundable, so it can only reduce taxes owed.

Additionally, if your child with a disability received Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) during the year, this does not prevent you from claiming either credit. Disability benefits do not count as earned income for these credit purposes.

Practical Takeaway: Calculate your tax benefit under both credits if you have a child with a disability. For lower-income families, the Child Tax Credit often provides more value due to its refundability. For families with high care expenses, the Dependent Care Credit may provide more benefit.

Medical Expense Deduction and Disability-Related Costs

While not technically a "credit," the Medical Expense Deduction is a significant tax benefit for people with disabilities and deserves attention when learning about tax relief options. Unlike credits that reduce your tax bill directly, this deduction reduces your taxable income, which then lowers your tax bill. This deduction covers medical and dental expenses that exceed a certain threshold of your adjusted gross income.

For the 2024 tax year, you can deduct medical expenses that exceed 7.5 percent of your adjusted gross income. This means if your AGI is $50,000, you can only deduct medical expenses above $3,750. Qualifying medical expenses for people with disabilities include doctor visits, hospital stays, prescription medications, dental work, vision care, hearing aids, psychiatric and psychological treatment, and medical equipment.

Beyond standard medical care, this deduction covers many disability-specific expenses. These include costs for guide dogs or other service animals (including food and care for the animal), crutches, wheelchairs and wheelchair parts, braces, prosthetics and prosthetic repairs, personal care attendants, and modifications to your home necessary for medical reasons (such as wheelchair ramps, grab bars, or accessible bathrooms). You can also deduct travel costs to receive medical treatment, including mileage or airfare to specialists.

Special considerations apply to certain expenses. Long-term care services may be partially deductible but have annual limits. Cosmetic surgery is not deductible unless it is reconstructive following injury or illness. Expenses paid by insurance, Medicaid, or other benefit programs do not count toward this deduction. You must itemize deductions on your tax return to claim medical expenses, which means you cannot use the standard deduction.

For people with low to moderate incomes or high medical expenses, this deduction may not provide significant tax savings since the 7.5 percent threshold is substantial. However, for people with annual medical expenses well above this threshold, the deduction can substantially reduce taxable income and therefore reduce taxes owed.

Practical Takeaway: Throughout the year, maintain detailed records of all disability-related medical and support expenses, including receipts, invoices, and mileage logs for medical travel. Add these up in December to determine if they exceed 7.5 percent of your income; if so, you may benefit from itemizing deductions rather than taking the standard deduction.

The Earned Income Tax Credit (EITC) and Work-Related Disability Benefits

The Earned Income Tax Credit (EITC) is the largest tax credit available to working people with low to moderate incomes. While not exclusively for people with disabilities, this