Caring for a disabled spouse can be a financial strain, but you do have opportunities to reduce the burden. There are many tax credits and other tax breaks available for disabled individuals and their caretakers. Among the most common are the Tax Credit for the Elderly or Disabled, the Child or Dependent Care Credit, and the Medical Expenses tax deduction.
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Taxable and non-taxable disability
If your spouse is receiving disability payments, it's important for tax planning purposes to understand the source of the payments to help determine whether those benefits are taxable. Some examples of taxable and non-taxable benefits include:
- Disability benefits from an employer, much like wages from that employer
- Benefits from a disability insurance policy that was paid for by an employer
- When the cost of a disability policy's premiums is split between an employer and an employee, any benefits attributable to the employer's portion of the premiums or paid using pre-tax dollars
- Social Security disability income, depending on the amount of ‘other’ income an individual earns
- Benefits from a disability insurance policy that you paid the premiums using after-tax money
- Veterans disability benefits
Credit for care expenses
If you pay someone to provide care for your disabled spouse, such as a live-in nurse or aide, you might be eligible for the tax credit for Child and Dependent Care Credit. This is the same credit that working parents claim when they pay for child care. Though you cannot actually claim your spouse as a dependent on your tax return, you can treat him or her like one to claim this credit if your situation meets the following conditions:
- Your spouse is physically or mentally incapable of caring for himself or herself
- Your spouse lived with you for at least half of the year
- You paid someone to care for your spouse so that you could work or look for work
- You had earned income from an employer for services
The amount of your tax credit depends on several factors, including your total earned income, how much you paid for care, and whether you are also paying for child care or care for another dependent. However, unlike many other tax breaks, this one doesn't have an upper income limit. Those with higher-income may get a smaller credit than those who earn a lower-income with the same expenses, but they still get something.
Disability tax credit
People who are unable to work and are receiving disability payments might also qualify for a tax break called the credit for the elderly and disabled. Your spouse could qualify for this credit if all of the following apply:
- Your spouse retired from his or her job on "permanent and total disability"
- Your spouse received taxable disability benefits from a former employer or from an insurance policy provided by that employer
- Your spouse was younger than the employer's mandatory retirement age (if it has one)
- Your spouse's income was not above certain limits
The term "permanent and total disability" is a disability that meets these criteria:
- Your spouse cannot work because of his or her condition
- A doctor has certified that your spouse's condition will last for at least 12 months or is terminal
You claim this credit—and figure out how much your credit is—by filing Schedule R with your tax return. When you use TurboTax, we ask you simple questions and fill in the right forms for you.
Medical expenses deduction
Caring for someone with a disability often means significant ongoing costs, such as for doctor visits, medication, therapy or mobility equipment, or modifications to your home, like a wheelchair ramp. Depending on your situation, you might be able to claim a tax deduction for a portion of your family's medical expenses. Deductions reduce your income, and therefore the amount of tax you owe. The main rules for deducting medical expenses are as follows:
- Your costs must fit the IRS definition of qualifying medical expenses. The definition is fairly broad. IRS Publication 502 provides information on many common expenses.
- You can deduct only the portion of your expenses that exceed 7.5% of your income in 2020. If you have gross income of $50,000, for example, the first $3,750 of expenses ($50,000 x 7.5% = $3,750) would not be deductible.
- You can't deduct any expenses that were reimbursed by an insurance company or someone else