IRS Pub 907 – Tax Highlights for Persons With Disabilities

IRS Pub 907 – Tax Highlights for Persons With Disabilities – If you’re navigating the complexities of taxes as a person with disabilities or as a caregiver, IRS Publication 907 serves as a vital resource. This guide outlines key tax benefits, deductions, and credits designed to ease financial burdens and promote independence. Updated for the 2025 tax year, it covers everything from income exclusions to ABLE accounts, helping you maximize your tax savings. Whether you’re dealing with disability pensions, medical expenses, or work-related accommodations, understanding these highlights can make a significant difference. For the full details, you can download the official PDF directly from the IRS website: Download IRS Pub 907 PDF.

In this SEO-optimized article, we’ll break down the main sections of IRS Pub 907, including eligibility criteria, examples, and tips for claiming benefits. Remember, while this overview is based on official IRS guidance, tax situations vary—consult a tax professional or use IRS tools like the Interactive Tax Assistant for personalized advice.

What’s New in IRS Pub 907 for 2025?

The IRS regularly updates Publication 907 to reflect changes in tax laws and limits. For 2025, key updates include:

  • An increase in the ABLE account annual contribution limit to $19,000, with additional allowances for employed beneficiaries.
  • Higher income limits for the Saver’s Credit (also known as the Credit for Qualified Retirement Savings Contributions): up to $39,500 for single filers, $59,250 for heads of household, and $79,000 for married couples filing jointly.

These adjustments aim to provide more support amid rising costs, ensuring persons with disabilities can better plan for their financial future.

Income Exclusions and Taxable Disability Payments

One of the core focuses of IRS Pub 907 is how disability-related income is treated for tax purposes. Not all payments are taxable, which can lead to significant savings.

Nontaxable Income Sources

  • Social Security and Supplemental Security Income (SSI): SSI payments are fully nontaxable. However, Social Security Disability Insurance (SSDI) or Railroad Retirement benefits may be partially taxable if your total income exceeds certain thresholds (e.g., $25,000 for single filers or $32,000 for joint filers). Use Form 1040 lines 6a and 6b to report these, and refer to Pub. 915 for worksheets.
  • Disability Pensions: These are taxable as wages until you reach minimum retirement age, then shift to pension income. Exceptions include payments for injuries from terrorist attacks, which are nontaxable.
  • Veterans Affairs (VA) Benefits: Disability compensation, pensions, education allowances, and similar payments from the VA are generally excluded from income.
  • Other Exclusions: Workers’ compensation, compensatory damages for physical injuries, long-term care insurance benefits, and accelerated death benefits for the terminally or chronically ill are typically nontaxable.

Taxable Income Examples

If you receive a disability pension from a private employer, it might be reported on Form 1099-R and taxed accordingly. For military or government pensions, most are taxable unless specifically exempted. Always check Pub. 525 for details on miscellaneous income.

Pro Tip: Set up a “my Social Security” account at SSA.gov/MyAccount to track your benefits, estimate future payments, and manage direct deposits—it’s a free tool highlighted in Pub 907 for easy access.

Persons with disabilities often incur higher medical costs, and IRS Pub 907 explains how to deduct these on Schedule A (Form 1040) if they exceed 7.5% of your adjusted gross income (AGI).

Qualifying Medical Expenses

Deduct costs for diagnosis, treatment, or prevention of disease, including:

  • Equipment like hearing aids, wheelchairs, or artificial limbs.
  • Transportation to medical appointments.
  • Home improvements for accessibility (e.g., ramps or widened doorways), minus any increase in home value.
  • Guide dogs or service animals, including their care.
  • Special education for those with intellectual disabilities.

See Pub. 502 for a full list and examples.

These are a standout benefit: Deduct unreimbursed expenses necessary for work due to your disability, such as attendant care or modified equipment. Unlike standard medical deductions, these aren’t subject to the 7.5% AGI floor and can be claimed as business expenses on Schedules C, E, or F (or Form 2106 for employees). Eligibility requires a physical or mental impairment that substantially limits major life activities, like walking or working.

Example: If you’re blind and need a reader to perform your job, those costs qualify as impairment-related work expenses.

Tax Credits to Reduce Your Tax Bill

Tax credits directly lower your tax liability, and Pub 907 details several targeted at persons with disabilities.

Child and Dependent Care Credit

Claim up to 35% of qualifying care expenses (max $3,000 for one dependent, $6,000 for two or more) if the care enables you to work. A qualifying person includes a disabled spouse or dependent unable to self-care. File with Form 2441.

Credit for the Elderly or the Disabled

Available if you’re 65+ or permanently and totally disabled (unable to engage in substantial gainful activity). Calculated on Schedule R (Form 1040), this credit can reduce taxes for lower-income individuals.

Earned Income Credit (EIC)

For 2025, income limits range from $19,104 (no children, single) to $68,675 (three+ children, joint). A qualifying child can be any age if permanently and totally disabled. Disability retirement benefits count as earned income before minimum retirement age.

Saver’s Credit

This nonrefundable credit rewards contributions to retirement plans or ABLE accounts, up to $1,000 ($2,000 joint). It’s ideal for building long-term savings without tax penalties.

ABLE Accounts: A Tax-Advantaged Savings Tool

ABLE (Achieving a Better Life Experience) accounts are a game-changer for eligible individuals with disabilities onset before age 26. These state-administered accounts allow tax-free growth on savings used for qualified disability expenses, like housing, education, or assistive technology.

  • Contribution Limits: $19,000 annually, plus extra for employed beneficiaries (up to the lesser of your compensation or the federal poverty line—$15,650 in most states).
  • Eligibility: Based on Social Security disability criteria or a physician’s certification of severe impairments.
  • Distributions: Tax-free if used for qualified expenses; otherwise, taxable with a 10% penalty.
  • Rollovers: Tax-free transfers to another ABLE account or from a 529 plan.

Upon the beneficiary’s death, states may claim funds for Medicaid recovery. Report contributions on Form 5498-QA and distributions on Form 1099-QA.

Compare programs at ABLE National Resource Center to find the best fit.

Business Incentives and Household Employer Rules

If you’re an employer, Pub 907 covers incentives like the Disabled Access Credit (Form 8826) for ADA compliance and the Work Opportunity Credit (Form 5884) for hiring individuals with disabilities. For household employers hiring in-home help, you may need to handle employment taxes—see Pub. 926 for thresholds and rules.

How to Get Help and Stay Updated?

The IRS offers accessible resources, including the Accessibility Helpline (833-690-0598) and alternative formats via Form 9000. Use IRS.gov for free filing options, VITA/TCE programs for low-income or disabled taxpayers, and tools like the EITC Assistant. Check IRS.gov/Pub907 for future developments.

In summary, IRS Publication 907 empowers persons with disabilities by highlighting tax relief options that support financial stability. Download the full guide here: IRS Pub 907 PDF. Always verify your eligibility and consider professional advice to ensure compliance with the latest tax rules.