Tax and Other Incentives
Over the years, Congress has enacted several tax credits, deductions and other incentives to help businesses remove barriers and provide accommodations for employees and customers with disabilities. Eight of these business incentives are listed below.
The Disabled Access Credit, IRS Code Section 44:
This is a tax credit for an eligible small business that pays or incurs expenses to provide access to persons with disabilities to comply with the Americans With Disabilities Act of 1990 up to a maximum benefit of $5,000.
The Tax Deduction for Architectural or Transportation Barrier Removal, IRS Code Section 190:
This is a deduction a business can take for making a facility or public transportation vehicle more accessible to and usable by persons who are disabled or elderly. The Architectural/ Transportation Tax Deduction: IRS Code Section 190, Barrier Removal, which allows businesses an annual deduction of up to $15,000 for expenses incurred to remove physical, structural, and transportation barriers for persons with disabilities at the workplace.
The Work Opportunity Tax Credit (WOTC):
This is a tax credit of up to $2400 for businesses that hire individuals from certain qualified groups, including disabled people who completed or are completing rehabilitative services from a state or the U.S. Department of Veterans Affairs.
The Welfare-to-Work Tax Credit:
This is a tax credit for businesses that hire individuals who have been certified by the "designated local Agency" as a member of a family that received Temporary Assistance to Needy Families (TANF) or Aid to Families with Dependent Children (AFDC).
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Earned Income Tax Credit (EITC):
The Social Security Administration Employment Network Cash Provision-The formula-based cash incentives are contingent upon favorable employment outcomes for people with disabilities, who are then able to forego their income maintenance (SSI and/or SSDI) benefits.
The Veterans Job Training Act:
This provides training costs for employers of long-term unemployed veterans of the Korean conflict or the Vietnam era.
The Mentor-Protégé Program, P.L. 102-172, Section 8064A:
Community Rehabilitation Programs (CRPs) which employ people with developmental disabilities and subcontract work from a prime contractor to the U.S. Department of Defense may receive technical assistance in areas such as production, management, financing, etc. The prime contractor (the mentor) is reimbursed by the federal agency for the costs of the technical assistance provided to the protégé.
Medical Expense Deduction:
Employees with disabilities can include non-reimbursed costs of medical equipment or costs for removing barriers as a "health care" deduction on the long form of their personal federal income tax.
On May 15, 2003 the IRS issued two revenue rulings clarifying whether certain medical expenses are deductible under Code Section 213, and thus potentially reimbursable under a health flexible spending account. The rulings cover breast reconstruction surgery; vision correction surgery; teeth-whitening procedures; and nonprescription drugs, equipment, supplies or diagnostic devices. For details, view the following documents:
Please call the ADA Information Line at 800-514-0301 (voice) or 800-514-0383 (TTY) with questions about the ADA. Specialists are available to answer questions from 10:00am until 6:00pm Eastern Time and automated service is available 24 hours a day to order publications. Visit the ADA Home Page.
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Tax Incentives for Improving Accessibility
Two tax incentives are available to businesses to help cover the cost of making access improvements. The first is a tax credit that can be used for architectural adaptations, equipment acquisitions, and services such as sign language interpreters. The second is a tax deduction that can be used for architectural or transportation modifications. A tax credit is subtracted from your tax liability after you calculate your taxes, while a tax deduction is subtracted from your total income before taxes, to establish your taxable income.
If the business meets income eligibility, the tax credit and deduction can be used annually. You may not carry over expenses from one year to the next and claim a credit or deduction for the portion that exceeded the expenditure limit the previous year. However, if the amount of credit you are entitled to exceeds the amount of taxes you owe, you may carry forward the unused portion of the credit to the following year.
Each tax incentive is explained in greater detail, but, for details and information not covered below, review these incentives with an accountant or contact your local IRS office or the national address:
For More Information:
Request IRS Publications 535 and 334 for further information on tax incentives, or Form 8826 to claim your tax credit.
To request an IRS Publications and Forms: (800) 829-3676 Voice/ (800) 829-4059 TDD
To ask a question of the IRS: (800) 829-1040 Voice/ (800) 829-4059 TDD
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A) Tax Credit
The tax credit, established under Section 44 of the Internal Revenue Code, was created in 1990 specifically to help small businesses cover ADA-related eligible access expenditures. A business that for the previous tax year had either revenues of $1,000,000 or less or 30 or fewer full-time workers may take advantage of this credit. The credit can be used to cover a variety of expenditures, including:
- provision of readers for customers or employees with visual disabilities
- provision of sign language interpreters
- purchase of adaptive equipment
- production of accessible formats of printed materials (i.e., Braille, large print, audio tape, computer diskette)
- removal of architectural barriers in facilities or vehicles (alterations must comply with applicable accessibility standards)
- fees for consulting services (under certain circumstances)
Note that the credit cannot be used for the costs of new construction. It can be used only for adaptations to existing facilities that are required to comply with the ADA. The amount of the tax credit is equal to 50% of the eligible access expenditures in a year, up to a maximum expenditure of $10,250. There is no credit for the first $250 of expenditures. The maximum tax credit, therefore, is $5,000.
B) Tax Deduction
The tax deduction, established under Section 190 of the Internal Revenue Code, is a maximum of $15,000 per year a reduction from the $35,000 that was available through December 31, 1990. A business (including active ownership of an apartment building) of any size may use this deduction for the removal of architectural or transportation barriers. The renovations under Section 190 must comply with applicable accessibility building code standards.
Small businesses can use these incentives in combination if the expenditures incurred qualify under both Section 44 and Section 190. For example, a small business that spends $20,000 for access adaptations may take a tax credit of $5000 (based on $10,250 of expenditures), and a deduction of $15,000. The deduction is equal to the difference between the total expenditures and the amount of the credit claimed.
Example:
- A small business' use of both tax credit and tax deduction
- $20,000 cost of access improvements (rest room, ramp, 3 doors widened)
- $5,000 maximum credit
- $15,000 remaining for deduction
For information on the ADA and how it applies to your business or facility, or to obtain copies of ADA regulations, Standards for Accessible Design, the Guide for Small Businesses, or other publications, contact the U.S. Department of Justice:
ADA Information Line for publications, questions, and referrals
800-514-0301 (voice)
800-514-0383 (TTY)
ADA Home Page
For information about tax code provisions that can assist businesses in complying with the ADA, contact Internal Revenue Service:
Tax code information
800-829-1040 (voice)
800-829-4059 (TTY)
Legal questions about ADA tax incentives:
202-622-3120 (voice)
TTY: use relay service
IRS Web Site
For information on how to accommodate an employee with a disability, contact the Job Accommodation Network (JAN) funded by the U.S. Department of Labor:
Job Accommodation Network
800-526-7234 (voice/TTY)
Job Accomodation Network Web Site
For information on the ADA Accessibility Guidelines, contact the U.S. Access Board
ADA Accessibility Guidelines:
800-526-7234 (voice and TTY)
United States Access Board Web Site
For information on making transportation accessible, contact Project ACTION funded by the Department of Transportation:
Project ACTION
800-659-6428 (voice)
TTY: use relay service
Project ACTION Web Site
For information on complying with the ADA and to obtain assistance in your area of the country, contact the regional Disability and Business Technical Assistance Centers (DBTAC) funded by the Department of Education. DBTACs will answer questions over the telephone or mail you copies of relevant statutes and rules free of charge. Some regional centers will provide training to groups of businesses and others:
Disability & Business Technical Assistance Centers
800-949-4232 (voice and TTY)
ADA Technical Assistance Program Web Site
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Tax Credits and Programs to Promote Employment of People with Disabilities
A). Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit (WOTC) is a federal income tax credit that can save employers up to $2,400 each time they hire someone who is a member of one of eight targeted groups, which have traditionally faced significant barriers to employment.
This program is subject to yearly Congressional renewal. The tax credit is extended to December 31, 2005. The credit is also retroactive to December 31, 2003.
An employer that hires someone from one of the following groups may qualify for the WOTC:
- A veteran who has received food stamps for at least 3 consecutive months in the 15 months prior to the date of hire
- An ex-felon who has been convicted or released from prison within one year of the date of hire AND is a member of a low-income family
- An 18-24 year-old resident of a federally designated Enterprise Community
- A disabled person who has been referred by the Department of Vocational Rehabilitation and has completed or is completing rehabilitative services from the State or the Veteran's Administration
- A 16-17 year-old resident of an Enterprise Community hired as a Summer Youth Employee between May 1 and September 15
- An 18-24 year-old food stamp recipient who has received food stamps for at least 6 consecutive months prior to the date of hire OR for at least 3 of the last 5 months, if able-bodied adult without dependents AND their food stamp eligibility has expired due to the work requirements
- A Supplemental Security Income recipient who has received benefits for any month in the 60-day period prior to the date of hire.
- A member of a family that is receiving or recently received Temporary Assistance to Needy Families (TANF) or Aid to Families with Dependent Childern (AFDC).
Employers can claim up to 40% of the first $6,000 in qualified first-year wages for a maximum credit of $2,400 per new hire. Qualified wages are capped at $6,000 for all WOTC target groups except Summer Youth, whose wages are capped at $3,000.
Schedule of WOTC tax credit:
- 1-119 hours = No Credit
- 120-399 hours, 25% of first $6,000 in wages = $1,500
- 400+ hours, 40% of first $6,000 in wages = $2,400
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B) Welfare to Work Tax Credit
The Welfare to Work tax credit is a federal income tax credit that can save employers up to $8,500 over a two-year period when they hire long-term welfare recipients. New hires must have received Temporary Assistance to Needy Families (TANF) for at least 18 consecutive months prior to the date of hire or a total of 18 months since August 1997. New hires must also have been hired within 2 years following the earliest 18-month period of receipt of TANF benefits to qualify.
Employers can claim 35% of the qualified wages for the first year of employment, if employed at least 400 hours or 180 days, and 50% for the second year. Qualified wages are capped at $10,000 per year with a maximum first year credit of $3,500 and $5,000 for the second year - a maximum total (two year) tax credit of $8,500 per new hire. Qualified wages include tax-exempt amounts received under accident or health plans, educational assistance programs, and dependent assistance programs.
Schedule of Welfare to Work tax credit:
- 1-399 hours = No Credit
- Minimum of 400 hours or 180 days each year:
- First year, 35% of first $10,000 in wages = $3,500
- Second year, 50% of first $10,000 in wages = $5,000
Participation in the program is voluntary. Employees are not required to provide this kind of information to an employer. Therefore, the employers must first determine whether the applicant is willing to provide the information. If the applicant is willing to provide the information, the employer must follow these steps to qualify:
- Complete IRS Pre-Screening Notice and Certification Request form 8850 before making the job offer.
- Complete either a Conditional Certification Form (ETA Form 9062) provided by the employee or an Individual Characteristics Form (ETA Form 9061).
- Mail all forms to:
Employment Security Department
WOTC Administrative Unit
PO Box 9046
Olympia, WA 98507-9046
Forms IRS 8850 and ETA 9061 must be completed with all information requested including original signatures.
Forms must be postmarked and submitted no later than 21 calendar days from the date the applicant starts work. All late applications will be denied.
Call the Washington State Employment Security Department at 1-800-669-9271 with any questions.
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C) Earned Income Tax Credit:
The Social Security Administration Employment Network Cash Provision-The formula-based cash incentive is contingent upon favorable employment outcomes for people with disabilities, who are then able to forego their income maintenance (SSI and/or SSDI) benefits.
The Earned Income Tax Credit (EITC), sometimes called the Earned Income Credit (EIC), is a refundable Federal income tax credit for low-income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. The credit reduces the amount of Federal tax owed and can result in a refund check. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. Income and family size determine the amount of the EITC. To qualify for the credit, both the earned income and the adjusted gross income for 2004 must be less than $30,338 for a taxpayer with one qualifying child ($31,338 for married filing jointly), $34,458 for a taxpayer with more than one qualifying child ($35,458 for married filing jointly), and $11,490 for a taxpayer with no qualifying children ($12,490 for married filing jointly). The EITC Eligibility Checklist on the last page of IRS' Publication 596, Earned Income Credit, may be used to quickly determine eligibility for the credit.
For tax year 2004, some of the rules regarding EITC changed. The taxpayer can read the rules in the 1040, 1040A, and 1040EZ tax packages or Publication 596 to determine eligibility for the credit.
The taxpayer may figure the credit by using a special worksheet included as part of the EITC instructions in the 1040, 1040A, and 1040EZ tax packages. Instructions in these packages require some taxpayers to use a worksheet in Publication 596 instead of the worksheet in the tax package.
For 2004, some employees with at least one child living with them may be entitled to receive advance EITC payments in their paychecks. The employee must file Form W-5, Earned Income Credit Advance Payment Certificate, with an employer to receive the advance payments. The employer then pays part of the credit to the employee in advance throughout the year. The taxpayer claims the rest when filing the 2004 Federal tax return. The EITC does not generally affect eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, or low-income housing.
Taxpayers may figure the EITC themselves, have the IRS figure the EITC by following instructions on page 21 of Publication 596, use the services of a tax professional, or get assistance from a Volunteer Income Tax Assistance (VITA) site. To find their closest VITA site, taxpayers may call the IRS at 1-800-829-1040.
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D) The Veterans Job Training Act
This program provides training costs for employers of long-term unemployed veterans of the Korean conflict or the Vietnam era. Hiring a veteran as an On-The-Job Trainee can benefit you in many ways:
- Your salary costs are reduced. VA can supplement a training wage, paying the veteran directly. VA pays a portion of the difference between actual and journeyman pay to the veteran. Your tax costs for Social Security, unemployment compensation and workman's compensation are based only on the salary paid by you.
- Needed tools and equipment supplied by VA.
- Employer pays a salary not less than that paid to other trainees in similar positions. VA assists in payment of cost of additional training needed.
- VA can assist in cost of necessary job accommodation.
- VA professionals are available for consultation during the training program.
- Training can be up to 24 months, or longer, if approved as an apprenticeship program.
In addition, if you would like to hire a disabled veteran through the VA Vocational Rehabilitation program, we can offer you some monetary compensation. Up to 50% of a veteran's salary paid to employer for indirect expenses related to program costs e.g. operation losses because of time spent training new employee.
- Needed tools and equipment supplied by VA.
- Low risk trial period.
- Reduced labor and training costs.
- Opportunity for employer to view veteran's skills and abilities.
- Up to six months reimbursement to employers (nine months with special approval). Minimal paperwork and employer involvement.
You may also call the federal Veterans Administration toll-free number at 1-(800)-827-1000, which will connect you with the nearest Regional Office. Ask to speak with the Employment Specialist or a Vocational Rehabilitation & Employment Officer.
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E) The Mentor-Protégé Program, P.L. 102-172, Section 8064A
Community Rehabilitation Programs (CRPs) that employ people with developmental disabilities and subcontract work from a prime contractor to the U.S. Department of Defense may receive technical assistance in areas such as production, management, financing, etc. The prime contractor (the mentor) is reimbursed by the federal agency for the costs of the technical assistance provided to the protégé. For federal rules, see:
http://www1.dshs.wa.gov/dvr/aboutdvr/fedregs/combofedregs.htm
Tax Incentives for People with Disabilities
Medical Expense Deduction
In addition to incentives and programs that assist employers and businesses with costs related to removal of barriers for employees and customers with disabilities, employees with disabilities can include non-reimbursed costs of medical equipment or costs for removing barriers as a "health care" deduction on the long form of their personal federal income tax.
On May 15, 2003, the Internal Revenue Service issued two revenue rulings to clarify when certain medical expenses are deductible under Code Section 213, and thus potentially reimbursable under a health flexible spending account. The rulings cover breast reconstruction surgery; vision correction surgery; teeth-whitening procedures; and nonprescription drugs, equipment, supplies or diagnostic devices.
Section 213(a) allows a deduction for expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, spouse, or dependent, to the extent the expenses exceed 7.5 percent of adjusted gross income. Under Section 213(d)(1), medical care includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.
Medical care does not include cosmetic surgery or other similar procedures, unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. Section 213(d)(9)(A). Cosmetic surgery means any procedure that is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. Section 213(d)(9)(B).
For example, A's cancer is a disfiguring disease because the treatment results in the loss of A's breast. Accordingly, the breast reconstruction surgery ameliorates a deformity directly related to a disease and the cost is an expense for medical care within the meaning of § 213(d) that A may deduct under Section 213 (subject to the limitations of that section).
The cost of B's laser eye surgery is allowed under Section 213(d)(9) because the surgery is a procedure that meaningfully promotes the proper function of the body. Vision correction with eyeglasses or contact lenses qualifies as medical care. See Rev. Rul. 74-429, 1974-2 C.B. 83. Eye surgery to correct defective vision, including laser procedures such as LASIK and radial keratotomy, corrects a dysfunction of the body. Accordingly, the cost of the laser eye surgery is an expense for medical care within the meaning of § 213(d) that B may deduct under § 213 (subject to the limitations of that section).
In contrast, a teeth-whitening procedure does not treat a physical or mental disease or promote the proper function of the body, but is directed at improving C's appearance. The discoloration is not a deformity and is not caused by a disfiguring disease or treatment.
Accordingly, C may not deduct the cost of whitening teeth as an expense for medical Section 213(b) permits an amount paid for a medicine or drug to be taken into account for purposes of the Section 213 deduction for medical care expenses only if the medicine or drug is a prescribed drug or insulin.
Section 213(d)(3) defines a prescribed drug as a drug or biological that requires a prescription of a physician for its use by an individual. Section 213(b) does not apply to items that are not medicines or drugs, including equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits. However, such items may qualify as medical care if they otherwise meet the definition in Section 213(d)(1) (2). Amounts paid by an individual for equipment, supplies, or diagnostic devices may be expenses for medical care deductible under Section 213 (subject to the other limitations of that section).
For further details of these rulings, visit these sites:
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