Know the Tax Perks for Clients With Disabilities

Jun 27th 2018
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The IRS is offering new perks for people with disabilities. The agency now allows them to deposit more money into their Achieving a Better Life Experience (ABLE) accounts and they can qualify for the Saver’s Credit for low- and moderate-income workers.

The changes are courtesy of the Tax Cuts and Jobs Act (TCJA), which also allows disabled individuals to roll money from their qualified tuition programs (529 plans) into their ABLE accounts. States also can offer special ABLE accounts to people who become disabled before age 26.

“Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses,” according to an IRS statement about the changes.

Contributions aren’t deductible but distributions, including earnings, are tax-free to the designated beneficiary if used to pay qualified disability expenses. Those expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services, and other disability-related expenses.

Beginning this year, beneficiaries who work can contribute part or all of their earnings to their ABLE account. That’s besides the current allowable contribution limit of $15,000 as the annual gift tax exclusion amount.

But the additional contribution is limited to the poverty limit for a single taxpayer. In 2018, that is $12,140 in the contiguous U.S.; $13,960 in Hawaii and $15,180 in Alaska. But the beneficiary can’t make the additional contribution if their employer contributes to a workplace retirement plan on their behalf.

As for the Saver’s Credit, ABLE account beneficiaries can qualify for it according to what they put in their ABLE accounts. Up to $2,000 of the contributions qualify for the credit, which is designed to help low- and moderate-income employees. The Saver’s Credit is claimed on Form 8880, Credit for Qualified Retirement Savings Contributions. The credit can cut taxes owed or increase the refund.

The IRS notes, however, that Form 8880 will be revised sometime this year to reflect TCJA changes. Finally, some funds now can be put in an ABLE account from the beneficiary’s own 529 plan or from the 529 plan of some family members.

The IRS urges disabled taxpayers who make use of these various tactics to ensure they are withholding the right amount of income tax from their paychecks. Taxpayers can check their withholding through the IRS’s Withholding Calculator.

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