Helpful Tax Filing Tips for Individuals With Disabilities: 2025 Guide
Individuals with disabilities can significantly reduce their tax burden and improve financial security by leveraging specific tax credits, deductions, and savings strategies designed to address their unique financial challenges. Understanding these opportunities is essential for maximizing financial independence and building long-term stability.
Key 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.
The Financial Reality for Americans 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.
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.
Essential Tax Credits for Individuals with Disabilities
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. This credit is particularly valuable because it's refundable, meaning you can receive it even if you don't owe any taxes. For 2025, eligible individuals with disabilities can receive up to $7,830 depending on filing status and number of qualifying children.
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. For 2025, this credit allows you to claim up to 35% of qualifying expenses, with maximum expenses of $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals.
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.
Maximizing Medical Expense Deductions
Generally, medical expenses exceeding 7.5 percent of your adjusted gross income (AGI) can be deducted. This includes costs related to:
- Doctor visits and specialist consultations
- Prescription medications and medical supplies
- Home modifications for accessibility (ramps, grab bars, widened doorways)
- Assistive devices and adaptive equipment
- Transportation expenses for medical appointments
- Therapy sessions and rehabilitation costs
- Long-term care services
For individuals with disabilities who often face higher healthcare costs, this deduction can provide significant tax savings. Keep detailed records of all medical expenses throughout the year, including receipts, invoices, and mileage logs for medical-related travel.
Understanding 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. SSI benefits are never taxable, while SSDI benefits may be partially taxable if your combined income exceeds certain thresholds.
Veterans Disability Benefits
Benefits received by disabled veterans are generally not taxed. This includes disability compensation, disability pension payments, and military disability retirement pensions. These tax-free benefits can significantly improve financial stability for veterans with disabilities.
Free Tax Preparation Assistance
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.
For 2025, VITA sites are equipped with assistive technologies and trained volunteers who understand disability-specific tax benefits. To find a VITA site near you, visit the IRS website or call 800-906-9887.
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.
Retirement Accounts for Individuals with Disabilities
If you have earned income, contributing to a retirement account can provide tax benefits and long-term financial security. Options include:
- Roth IRA: Contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free.
- Traditional IRA: Contributions may be tax-deductible, reducing your current tax liability.
- Retirement plans for self-employed individuals: If you're self-employed with a disability, you might consider a SEP IRA or Solo 401(k) for higher contribution limits.
Maximize Employer Benefits
If employed, take full advantage of employer-sponsored retirement plans, flexible spending accounts (FSAs), or health savings accounts (HSAs). Many employers offer matching contributions to retirement plans, which is essentially free money for your future.
The Power of ABLE Accounts for Individuals with Disabilities
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. This tax advantage helps your savings grow faster over time.
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. This is a significant advantage over traditional savings accounts, which can disqualify individuals from receiving essential benefits if they exceed resource limits.
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. The ABLE to Work Act allows employed account holders to contribute their earnings up to the Federal Poverty Level amount, effectively doubling their potential annual contributions.
Flexible Spending Options
Funds can be used for a broad range of expenses, including:
- Assistive technology and personal support services
- Education and employment training
- Housing and transportation
- Healthcare expenses not covered by insurance
- Legal fees and financial management costs
- Basic living expenses
Special Needs Trusts: Another Valuable Tool
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.
Comparing ABLE Accounts and Special Needs Trusts
| Feature | ABLE Account | Special Needs Trust |
|---|---|---|
| Contribution Limits | $19,000 annually (2025) | No limits |
| Eligible Expenses | Qualified disability expenses | Supplemental needs not covered by government benefits |
| Tax Benefits | Tax-free growth for qualified expenses | Varies based on trust type |
| Control | Individual or representative | Trustee |
| Setup Complexity | Simple online process | Requires legal assistance |
| Impact on Benefits | Preserves eligibility (up to $100,000 for SSI) | Preserves eligibility when properly structured |
Many families find that using both an ABLE account and a special needs trust provides the most comprehensive financial strategy for individuals with disabilities.
Planning for the Future: Beyond Tax Season
While tax planning is important, individuals with disabilities should also consider broader financial planning strategies:
- Create a comprehensive financial plan that addresses both short-term needs and long-term goals
- Review and update estate planning documents regularly to ensure they reflect current wishes and circumstances
- Explore employment support programs that can help maximize earning potential while maintaining necessary benefits
- Consider long-term care insurance or other strategies to fund future care needs
- Stay informed about legislative changes that may affect disability benefits and tax advantages
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.
This comprehensive guide was last updated on April 29, 2025, reflecting current tax benefits and financial strategies for individuals with disabilities.