Helpful Tax Filing Tips for Individuals With Disabilities

Takeaways

• Individuals with disabilities can take advantage of tax credits, deductions, and savings strategies to improve their financial well-being.

• ABLE accounts are one useful tool to save and invest without jeopardizing government benefits.

• Understanding tax benefits and leveraging available resources can help individuals with disabilities take control of their financial future.
• Consult with a special needs planning attorney to learn more about benefits available to individuals with disabilities.

Filing taxes can be time-consuming and complicated, but there are some available resources, benefits, and tax credits that can help individuals with disabilities lower their tax liability and boost their savings. Understanding these opportunities is key to maximizing financial security and independence. Below are some tax tips, savings strategies, as well as insights into how ABLE accounts can be a particularly valuable tool.

Tax Tips for Individuals With Disabilities

One in four adults in the United States reports having a disability, and many of them are facing a major gap when it comes to their finances. In fact, a 2023 report showed that only 10 percent of working-age people with disabilities are financially stable. At the same time, households with an adult who has a work-limiting disability need 28 percent more income, on average, to secure the same standard of living as those without a disability.

For individuals and families with disabilities, becoming familiar with ways to save money when filing their tax returns can help reduce the amount of money owed and potentially increase a tax refund.

Take Advantage of Tax Credits

• Earned Income Tax Credit (EITC): If you work and have a qualifying income, you may be eligible for the EITC, which can provide a substantial refund. 
• Child and Dependent Care Credit: If you pay for care for a dependent with a disability so you can work, the child and dependent care credit can help offset some of the costs. The credit can be used to cover expenses such as child care, adult daycare, and in-home care.
• Credit for the Elderly or Disabled: If you have a permanent and total disability and meet income requirements, you may qualify for this tax credit. It is available to taxpayers who are age 65 or older, or who are retired and receiving Social Security disability benefits. The credit amount is based on the taxpayer’s income and filing status, and it can be used to offset federal income tax liability. For families raising a child with a disability, this credit may help to offset extra costs such as medical expenses, therapy costs, and assistive technology.

Deduct Medical Expenses

Generally, medical expenses exceeding 7.5 percent of your adjusted gross income (AGI) can be deducted. This includes costs related to doctor visits, prescriptions, home modifications, and assistive devices. Transportation expenses for medical visits may also be deductible.

Understand Disability-Related Income Tax Exclusions

• Social Security Disability Benefits: If you receive Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), these benefits may be tax-free depending on your total income.
• Veterans Disability Benefits: Benefits received by disabled veterans are generally not taxed.

Consider Using a Tax Preparation Service

The IRS provides free tax preparation assistance through the Volunteer Income Tax Assistance (VITA) program, which can help individuals with disabilities file their taxes accurately.

The VITA program serves low- to moderate-income individuals. Through volunteers, VITA helps individuals with disabilities navigate the complexities of the tax code, ensuring that they receive the credits and deductions to which they are entitled. This can result not only in significant savings, but also a more accessible and equitable tax filing process for individuals with disabilities.

Boosting Savings and Financial Security

Saving money for the future is key to establishing financial security. There are many ways to save, and some are specifically designed for people with disabilities.

Tax-Advantaged Savings Accounts

Tax-free savings accounts, such as Achieving a Better Life Experience (ABLE) accounts, allow individuals with disabilities to save for future expenses without affecting their eligibility for government benefits such as SSI and Medicaid.

Roth IRA or Traditional IRA

If you have earned income, contributing to a retirement account can provide tax benefits and long-term financial security.

Maximize Employer Benefits

If employed, take full advantage of employer-sponsored retirement plans, flexible spending accounts (FSAs), or health savings accounts (HSAs).

Benefits of ABLE Accounts

Opening an ABLE account allows individuals with disabilities, or their families, to maintain tax-free savings or investment accounts. The benefits of establishing an ABLE account include:

• Tax-Free Growth: Funds in an ABLE account grow tax-free if used for qualified disability expenses, including housing, education, transportation, and medical costs.
• Preserving Government Benefits: Individuals can save up to $100,000 in an ABLE account without affecting their SSI benefits. Medicaid eligibility is not affected, regardless of the account balance.
• Increased Contribution Limits: Annual contributions to ABLE accounts are limited to $19,000 (as of 2025), but individuals who work can contribute additional funds beyond this limit.
• Flexible Spending Options: Funds can be used for a broad range of expenses, including assistive technology, job training, housing, and transportation.

A Note on Special Needs Trusts

A special needs trust (SNT) is another tool that can be used to set aside funds for an individual with disabilities while maintaining eligibility for means-tested programs. Funds in this type of trust can be used for things such as education, recreation, and assistive technology. Plus, the money in the trust is protected from creditors and lawsuits.

Some SNTs can be set up by a parent, grandparent, or another family member and can be funded with cash, stocks, bonds, or real estate. These trusts are managed by a trustee, who is responsible for investing the assets and distributing the income and principal to the beneficiary in a manner that does not jeopardize their eligibility for government benefits.

If you or your loved one has a special needs trust, it’s a good idea to talk to a tax expert or your special needs planning lawyer during tax season. They can help make sure that any income received is reported correctly on your tax return.

Learn More About Tax Benefits for Individuals With Disabilities

Individuals with disabilities can take advantage of various tax credits, deductions, and savings strategies to improve their financial well-being. ABLE accounts, in particular, offer a useful tool to save and invest without jeopardizing government benefits. By understanding tax benefits and leveraging available resources, individuals with disabilities can take control of their financial future and enhance their quality of life. Contact an experienced special needs planning attorney near you to learn more about benefits available to Americans with disabilities and how to incorporate them into your planning.

For additional reading about benefits available for individuals with disabilities, check out the following articles:

• Tax Deductions for Parents of Children With Disabilities
• Tax Tips for People With Special Needs and Their Families
• Often-Overlooked Tax Credit Expanded, Now Covers More People With Disabilities
• How Can You Protect Beneficiaries With Special Needs?
• Dependent Care FSA: A Tax Benefit Program for Workers