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Recent articles by Jeff Schnepper: • 7 big tax changes I'd really like to see, 6/28/2005 • Even overseas, you can't escape the IRS, 6/7/2005 • Ground your retirement fund with real estate, 4/20/2005 More... |
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It's tough enough to have to restart your life if you're disabled fighting in Iraq or hurt on the job. Congress understands this and offers the disabled a host of useful tax breaks. By Jeff Schnepper U.S. servicemen and women are deployed around the globe defending our democracy and our freedom. Some make the ultimate sacrifice. Others, wounded in action, return home disabled and have to cope with making a new life At the same time, many people become disabled for other reasons: job accident, health crisis or the like. Coping with those disabilities is hard physically, emotionally and financially. The general rule is that all income is taxable unless its specifically excluded by law. But if youre disabled, our tax code gives you a number of breaks. The breaks mean savings for you or for your family. Here's a rundown. Military and government disability pensions Generally, disability pensions are included in your income. But some military and government disability pensions dont count. For example, you dont include disability benefits you get from the Department of Veterans Affairs. Among these excluded benefits are:
Other disability payments Other payments you may receive related to your disability may also be excluded. These include:
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If youre disabled, youre probably going to incur significant medical expenses. You can deduct these as itemized expenses to the extent they exceed 7.5% of your adjusted gross income (line 36 on your Form 1040). If you earn $75,000 a year, for example, the first $5,625 in medical expenses in any given year are not deductible. All qualified expenses after that threshold is reached are deductible. Such deductions would include the cost for:
But -- and there's always a but -- contributions to medical reimbursement accounts, health savings accounts, flexible spending and similar accounts do not apply to the 7.5% threshold. For more on medical expenses, see IRS Publication 502. Business tax incentives Businesses get some breaks for helping people with disabilities. They include:
Nonmilitary and government disability pensions If you have a disability pension plan at work, whether the income received is taxable depends on who paid for the plan. If your employer paid the full amount, all of the income is taxable. If you paid the full cost of the plan, none of the income is taxable. If both you and your employer paid for the plan, you report only the amount received due to your employers payments. The rest is tax-free. Social Security benefits Up to 85% of your Social Security benefits may be subject to tax, depending on your income. Supplemental security income (SSI) payments are tax-free. Dont include them in your income. Other disability benefits The tax code is very friendly to those who are disabled. Publication 907, "Tax Highlights for Persons with Disabilities," offers a host of other details. Additional aids include increased availability for dependent-care benefits (see Form 2441), child and dependent-care benefits (again Form 2441), and credits for the elderly and disabled (see Schedule R and Publication 524). Of course, these benefits dont make a disability go away. But they do make it financially easier to live with. | |||||||||||||||
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