Military Tax Breaks for Families With Special Needs

Photo by Thomas Hamilton III U.S. Army Europe

Military families are often eligible to claim certain tax breaks and benefits, and military families with special needs may have more tax advantages than they realize. Do you know what your potential tax breaks may be? What follows should not be construed as tax advice, but study the list below to see what you may be able to claim on your next federal tax filing.

There are tax breaks for a variety of situations, and for the purpose of this article the term “special needs” refers to any family member, including the veteran tax-filer, who may have Department of Veterans Affairs-rated disabilities or other issues that may qualify for federal tax breaks in that capacity.

Important Tax-Time Choices

Married service members will need to decide how to file: married filing jointly, filing as head of household, considered married or married but filing separately. The Internal Revenue Service official site warns, “You will generally pay more combined tax on separate returns than you would on a joint return for the reasons listed under Special Rules.”

The IRS also advises those considering filing separately to do two sets of returns – one combined and one not – to see how much tax they will each have to pay. “When figuring the combined tax of a married couple” IRS Publication 501 advises, “you may want to consider state taxes as well as federal taxes.”

Those who choose “married filing separately” should know the IRS warning about deductions. “If your spouse itemizes deductions, you can’t claim the standard deduction.” For couples who choose to file separately, those who claim the standard deduction will be allowed to deduct “half the amount allowed on a joint return” as the basic tax deduction.

Federal Tax Breaks for Military Families With Children or Dependent Adults

Military families with a permanently disabled member may be able to claim the disabled family member as a dependent. This may be true no matter how old the disabled family member is. If the person is in the care of the individual or couple filing their tax returns, this tax break could be very helpful.

Federal Tax Breaks for Disabled, Retired People Under 65

Military families with special needs fall into many different kinds of demographics. For those who have family members who are permanently disabled, under 65, and retired, the IRS encourages applying for the tax credit for the elderly or the disabled, which is offered only to those filing IRS Form 1040 or 1040A.

Earned Income Tax Credit for a Permanently and Totally Disabled Family Member

The IRS earned income tax credit is offered to those supporting a family member who is permanently and totally disabled. You may claim this tax credit for a natural or adopted child, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or their descendant.

Federal Income Tax Credits for Adopting a Child

Military families who have adopted children may be eligible for a federal income tax adoption credit of up to $14,440 for tax year 2021. IRS Tax Topic 607 at IRS.gov states that you may apply for “tax credit for qualified adoption expenses paid to adopt an eligible child,” plus an income exclusion for adoption assistance offered by an employer where applicable.

This tax credit is considered “nonrefundable,” which means the IRS limits the credit to your tax liability for the year filed. IRS.gov reminds us, “Any credit in excess of your tax liability may be carried forward for up to five years.”

Qualified adoption expenses include but may not be limited to:

• Adoption fees
• Court costs
• Attorney fees
• Traveling expenses (including meals, hotels or other lodging, etc.)
• Expenses for the principal purpose of the legal adoption of an eligible child

It is important to note that there is no requirement that the adopted child have special needs, disabilities or other conditions. This tax credit is for any qualifying adoption.

Federal Tax Credit for Adoption of a Special Needs Child

The IRS permits an “adoption credit” in the case of adoptions of children with special needs. This rule also allows the taxpayer to exclude employer-provided adoption benefits from reported income in such cases.

Child and/or Dependent Care Tax Credit

Families who pay for dependent care for a child under 13 or a loved one unable to care for themselves may be eligible for a federal tax credit of “up to 35% of your expenses,” according to IRS.gov. However, to qualify for this tax break, “you must pay these expenses so you can work or look for work.”

IRS Tax Credit for Approved Medical Expenses

The IRS allows a tax deduction for medical expenses for the filing individual, dependents and spouses. You are not allowed to claim deductions for expenses paid for by health insurance, and the deduction is intended only for medical or dental costs you personally paid for in the tax filing year but not for future years.

In general, the IRS official site says the tax filer may include their own medical expenses, “as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them.”

The IRS has different rules for those “who are the subject of multiple support agreements,” so if you aren’t sure how this applies to you, ask a tax professional.

That said, the IRS states that a taxpayer who provided “more than half” of a qualifying relative’s support under a multiple support agreement may deduct medical expenses the taxpayer paid on that person’s behalf.

In this context, a “multiple support agreement,” considered such when two or more people provide more than half of a person’s support, “but no one alone provides more than half” according to IRS Publication 502.

Federal Tax Credit for the Blind

Blind taxpayers can qualify for a higher standard federal income deduction, but those who are not totally blind will require medical documentation stating the degree of vision impairment.

Federal Tax Credit for Disability-Related Work Expenses

Taxpayers who have a physical or mental disability that limits employment or, as the IRS official site adds, “substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working,” may be permitted to deduct “impairment-related work expenses” for “attendant-care services at your place of work and other expenses in connection with your place of work that are necessary for you to be able to work.”

Federal Tax Credit for Disability Payments Received as the Result of Terrorism

IRS.gov advises taxpayers not to include the amount of disability payments received, “as a direct result of terrorist attacks directed against the United States (or its allies), whether outside or within the United States.”

Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.