Tax Breaks for Disability (US): Credits and Deductions You're Missing

Taxes are probably the last thing you want to think about right now, but a diagnosis opens up tax breaks that can save you hundreds or thousands — and many of them are retroactive. Credit for the Elderly or the Disabled: - Available if you're 65+ OR retired on permanent and total disability and have limited income - Up to $3,750 credit (reduced by income above certain thresholds) - Most people who qualify for SSDI and have modest income qualify - Claim on Form 1040, Schedule R Medical Expense Deduction: - If you itemize deductions, you can deduct medical expenses exceeding 7.5% of your AGI - This is a LOT more than people realize — includes: doctor visits, hospital stays, prescriptions, medical equipment, transportation to medical care (mileage or transit), home modifications for medical purposes (ramps, grab bars), insurance premiums you pay out of pocket, long-term care costs - If you had a big medical year (diagnosis + treatment + equipment), this deduction can be substantial - Keep ALL receipts and track mileage to appointments ABLE Accounts (tax-free savings for disability): - If you became disabled before age 26, you can open an ABLE account - Contributions are after-tax but growth is tax-free and withdrawals for disability-related expenses are tax-free - 2026 contribution limit: $18,000/year (plus employed individuals can contribute an additional amount from earned income) - The first $100,000 in the account doesn't affect SSI or Medicaid eligibility - Many states offer tax deductions for contributions to their state's ABLE program Earned Income Tax Credit (EITC): - If your income dropped because you can't work as much, you might now qualify for EITC even if you never did before - Worth up to $7,000+ depending on filing status and number of children - It's refundable — meaning you get it even if you owe no tax Dependent Care Credit: - If you pay someone to care for your dependent (child, spouse, disabled adult) so you can work or look for work, you can claim this credit - Worth up to $1,050 for one dependent, $2,100 for two or more Standard Deduction vs. Itemizing: - After a diagnosis, your medical expenses may be high enough that itemizing beats the standard deduction — run the numbers both ways - 2026 standard deduction: $15,450 (single), $30,900 (married filing jointly) Key advice: If you haven't been claiming these, you can amend tax returns for up to 3 previous years. A tax professional who knows disability tax issues can be worth their fee many times over.