The tax overhaul bill passed at the end of 2017 ushered in major changes for all taxpayers including people with disabilities. Here are a few of the major changes that could impact individuals with disabilities depending on their tax situation.
Standard Deduction Increase to $12K. Starting in 2018 the new threshold for not having to pay any federal taxes and file a federal tax return increases to $12,000 up from the current threshold of $10,400 (including both the personal exemption and standard deduction).
529s and ABLE Accounts: Starting in 2018, 529 accounts can be rolled into an ABLE account with no penalty. Families with special needs children now have the ability to roll funds from a 529 account into an ABLE account for the same beneficiary. Moving these funds to an ABLE account will give families and individuals increased flexibility as to what is considered a qualified tax withdrawal.
Increased Contributions to ABLE Accounts: Individuals now have the ability to contribute their work earnings to ABLE accounts up to 100% of the Federal Poverty Level (for 2018 this limit was $12,060 for a single household) IN ADDITION to the 2018 ABLE maximum contribution level of $15,000 . This means that an individual or other donors could potentially contribute $27,060 annually to the individual’s ABLE account if the person had sufficient work earnings.
Contributions to ABLE Accounts are Eligible for Saver’s Credit: The Saver’s Credit is a little used tax credit for low income individuals who make contributions to their retirement accounts. Now individuals with disabilities who set aside money in their ABLE accounts will be eligible for the same tax credit, up to a maximum credit of $2,000. The credit can only be applied to federal taxes owed in the current tax year.
Temporary Reduction in Medical Expense Deduction: For those families who itemize their deductions in 2017 and 2018 and incur significant medical expenses, the threshold for taking the medical expense reduction is reduced to 7.5% of adjusted gross income. After 2018, the medical deduction threshold returns to 10% of adjusted gross income.
Increase in Child Tax Credit: For those families with children under age 17, the child tax credit goes up from $1,000 to $2,000 annually.
These tax changes overall will provide individuals with disabilities and their families more ways to save and minimize their taxes in the future.