Employment Related Tax Benefits Associated with Disabilities

Living with a disability is challenging and often this requires adaptation on an individual’s part. If you are a person with a disability or have a dependent with a disability it is important to be aware that you may be entitled to certain tax benefits which include deductions for impairment-related work expenses and credits for businesses wishing to accommodate persons with disabilities. This article will summarize certain tax rules for impairment related expenses. 

Parents of a child with a disability may qualify for certain tax benefits. A parent may be able to claim their child as a dependent regardless of age if the child is permanently and totally disabled. which is defined as:

• The child cannot engage in any substantial gainful activity because of a physical or mental condition.
• A doctor determines the condition has lasted or can be expected to last continuously for at least a year or could lead to death.

Parents who pay someone to care for a child with a disability may qualify for the Child and Dependent Care Credit. In order to qualify, the taxpayer’s filing status must include a dependent child or another “qualifying person.” A “qualifying person” is a child under the age of 13 or a spouse or dependent who is disabled and not able to care for themselves. The dependent must have lived with the taxpayer for more than half the year. Depending on the taxpayer’s income level, the credit is equal to as much as 35% of related dependent care expenses. The ceiling on such expenses is $3,000 for one disabled child and $6,000 for two or more.

Employed individuals with a disability may incur expenses associated with their job. Impairment work related expenses are those considered to be necessary in order to complete one’s job such as a vision impaired person using a reader or a hearing impaired person using a sign language interpreter for work. These costs are deductible as an impairment related work expenses. No allocation for personal use is required. Such expenses can be claimed as miscellaneous itemized deductions not subject to a 2% limitation.  

Employers are also entitled to certain deductions and credits related to accommodations for disabled employees. A common deduction relates to barrier removal costs. Generally, the cost of an improvement to an asset is capitalized. However, making a place of business more accessible to employees or customers with a disability can be deducted. In order for the deduction to be permitted the employer must own or lease the facility. For these purposes, a facility is defined as all or a portion of a building, structures associated with it, equipment, roads, walks and parking lots. The maximum deduction allowable for these types of costs is $15,000. Costs that exceed that amount can be added to the basis of the property and depreciated.  To make this election, the business can simply claim the deduction on its income tax return for the year the expenses are incurred. The deduction must be shown as a separate line item. It is also important for the business to maintain appropriate records.

Those businesses considered a “small business” are eligible for the Disabled Access Credit. The maximum credit is $5,000. The credit is 50% of expenditures over $250, not to exceed $10,250. The credit amount is subtracted from the total tax liability after calculating taxes. (A business cannot claim both the deduction and the credit.)

Barrier removal costs must meet qualification standards imposed by the Architectural and Transportation Barriers Compliance Board under the Americans with Disabilities Act (ADA) of 1990. Examples of architectural barrier removal costs include ground and floor surfaces, walks, parking lots, ramps, protruding objects, elevators, and stairs. If a barrier is not covered by the standards outlined by the Board it can still be deductible if it meets all three of the following conditions:

• The removed barrier has to be a substantial barrier to access the facility by individuals that have a disability or are elderly.
• The barrier must have been a barrier for at least one major group of persons with disabilities. (An example of a group includes people who are blind, deaf, or wheelchair users.)
• The barrier removal must not generate a new barrier that significantly impairs access to a facility by other disabled groups.

There are significant tax benefits for both employees and employers, but it is important to note that books and records for the appropriate deduction or credit should be maintained.

Should you have any questions related to taxes or credits related to disabilities, contact your Marcum Tax Professional.