Tax season is almost over. If you have not filed your taxes yet you may want to refer to the prior two Disability Insight articles (Tax Tips) and (Should I Claim my Child as a Dependent .) Special needs families and individuals with disabilities may be confused about whether filing a return for the individual is necessary. This article discusses when filing a return is required and when it may be advantageous to the person with a disability to do so.
Income Thresholds for Filing a ReturnThanks to the Tax Cuts and Jobs Act the threshold for filing a return has increased to $12,000 (the standard deduction amount) for single individuals with earned income and $1,050 for unearned income. Importantly SSI payments are not considered taxable income and SSDI payments are not taxable until income exceeds $25,000. The increase in the threshold amount means that for many individuals and families, the person with a disability will not have to file an individual tax return.
Income from ABLE Accounts and SNTsIncome earned through savings and investment accounts owned by the individual may trigger the need for a tax return filing if unearned income exceeds $1,050. Income earned in an ABLE account, however, grows tax free. SNTs are a different matter, depending on what type of trust it is. Income from first party trusts are most often attributable to the individual with disabilities. If the taxable income from the first party trust exceeds $1,050 than the individual would need to file a return. Income earned through a third-party or family trust are either taxed to the “grantor” or to the trust depending on what type of trust it is. A detailed discussion of trust taxation is outside the scope of this articleEven if the adult child with a disability does not meet the filing requirements, they still may want to file a tax return, particularly if they worked during the tax year. If any income tax was withheld from their paycheck the individual would be due a refund. Importantly the adult child with a disability may qualify for other tax credits, like the earned income credit. In both of these cases it would be advantageous to the person with disabilities to file a return.