Tax Highlights   for Persons with   Disabilities

Introduction

This publication gives you a brief introduction to certain parts of the tax law of particular interest to people with disabilities and those who care for people with disabilities. It includes highlights about:

• Income,
• Itemized deductions,
• Tax credits,
• Household employees, and
• Business tax incentives.

You will find most of the information you need to complete your tax return in your form instruction booklet. If you need additional information, you may want to order a free tax publication. You may also want to take advantage of the other free tax help services that IRS provides.

See How To Get Tax Help, at the end of this publication, for information about getting publications, forms, and free tax services.

taxmap/pubs/p907-000.htm#TXMP51236875 Comments and suggestions.

We welcome your comments about this publication and your suggestions for future editions.

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Internal Revenue Service  
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Washington, DC 20224

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taxmap/pubs/p907-000.htm#TXMP0c15e625 Ordering forms and publications.

Visit www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 business days after your request is received.

 
National Distribution Center  
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taxmap/pubs/p907-000.htm#TXMP75ba833d Tax questions.

If you have a tax question, visit www.irs.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

taxmap/pubs/p907-000.htm#TXMP3e2baf19 Income

Income

All income is taxable unless it is specifically excluded by law. The following discussions highlight some income items (both taxable and nontaxable) that are of particular interest to people with disabilities and those who care for people with disabilities.

taxmap/pubs/p907-000.htm#TXMP4750a584 Dependent Care Benefits

Dependent Care Benefits

You can exclude from income benefits provided under your employer's qualified dependent care benefit plan. You may be able to exclude up to $5,000 ($2,500 if married filing separately). The care must be provided for:

1. Your qualifying child who is your dependent and who was under age 13 when the care was provided,
2. Your spouse who was physically or mentally not able to care for himself or herself and lived with you for more than half the year, or
3. A person who was physically or mentally not able to care for himself or herself, lived with you for more than half the year, and either:
   1. Was your dependent, or
   2. Would have been your dependent except that:
      1. He or she received gross income of $3,300 or more,
      2. He or she filed a joint return, or
      3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2006 return.

For information about excluding benefits on Form 1040, see Form 2441, Child and Dependent Care Expenses, and its instructions. For information about excluding benefits on Form 1040A, see Schedule 2 (Form 1040A), Child and Dependent Care Expenses for Form 1040A Filers.

taxmap/pubs/p907-000.htm#TXMP42ebf876 Social Security and Railroad Retirement Benefits

Social Security and Railroad Retirement Benefits

If you received social security or equivalent tier 1 railroad retirement benefits during the year, part of the amount you received may be taxable.

taxmap/pubs/p907-000.htm#TXMP5165c0a6 Are any of your benefits taxable?

If the only income you received during the year was your social security or equivalent tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return.

If you received income during the year in addition to social security or equivalent tier 1 railroad retirement benefits, part of your benefits may be taxable if all of your other income, including tax-exempt interest, plus half of your benefits are more than:

• $25,000 if you are single, head of household, or qualifying widow(er),
• $25,000 if you are married filing separately and lived apart from your spouse for all of the year,
• $32,000 if you are married filing jointly, or
• $-0- if you are married filing separately and lived with your spouse at any time during the year.

For more information, see the instructions for Form 1040, lines 20a and 20b, or Form 1040A, lines 14a and 14b. Publication 915, Social Security and Equivalent Railroad Retirement Benefits, contains more detailed information.

taxmap/pubs/p907-000.htm#TXMP230237fe Supplemental security income (SSI) payments.

Social security benefits do not include SSI payments, which are not taxable. Do not include these payments in your income.

taxmap/pubs/p907-000.htm#TXMP785d4dce Disability Pensions

Disability Pensions

Generally, you must report as income any amount you receive for your disability through an accident or health insurance plan that is paid for by your employer. If both you and your employer pay for the plan, report as income only the amount you receive for your disability that is due to your employer's payments. Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension.

If you paid the entire cost of the plan, do not report as income any amounts you get from the plan for your disability. See Publication 525, Taxable and Nontaxable Income, for more information.

taxmap/pubs/p907-000.htm#TXMP7703172e Military and Government Disability Pensions

Military and Government Disability Pensions

Generally, you must report disability pensions as income, but do not include certain military and government disability pensions. For information about military and government disability pensions, see Publication 525.

taxmap/pubs/p907-000.htm#TXMP5bc8ce53 VA disability benefits.

Do not include disability benefits you receive from the Department of Veterans Affairs (VA) in your gross income. If you are a military retiree and do not receive your disability benefits from the VA, see Publication 525 for more information.

Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the VA. These include:

• Education, training, or subsistence allowances,
• Disability compensation and pension payments for disabilities paid either to veterans or their families,
• Grants for homes designed for wheelchair living,
• Grants for motor vehicles for veterans who lost their sight or the use of their limbs,
• Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death,
• Interest on insurance dividends left on deposit with the VA,
• Benefits under a dependent-care assistance program, or
• The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001.

taxmap/pubs/p907-000.htm#TXMP486410cc Rehabilitative program payments.

VA payments to hospital patients and resident veterans for their services under the VA's therapeutic or rehabilitative programs are included as income other than wages. These payments are reported on Form 1040, line 21.

taxmap/pubs/p907-000.htm#TXMP3346b7ec Other Payments

Payment

You may receive other payments that are related to your disability. The following payments are not taxable.

• Benefit payments from a public welfare fund, such as payments due to blindness.
• Workers' compensation for an occupational sickness or injury if paid under a workers' compensation act or similar law.
• Compensatory (but not punitive) damages, for physical injury or physical sickness.
• Disability benefits under a "no-fault" car insurance policy for loss of income or earning capacity as a result of injuries.
• Compensation for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement.

taxmap/pubs/p907-000.htm#TXMP3748bdd0 Long-Term Care Insurance

Long-Term Care Insurance

Qualified long-term care insurance contracts generally are treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or a premium refund) generally are excludable from income as amounts received for personal injury or sickness. More detailed information can be found in Publication 525.

taxmap/pubs/p907-000.htm#TXMP1deaa089 Accelerated Death Benefits

Accelerated Death Benefits

You can exclude from income accelerated death benefits you receive on the life of an insured individual if certain requirements are met. Accelerated death benefits are amounts received under a life insurance contract before the death of the insured. These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. This exclusion applies only if the insured was a terminally ill individual or a chronically ill individual. For more information, see Publication 525.

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