Department of the TreasuryInternal Revenue ServicePublication 907Cat. No. 15308HTax Highlights for Personswith DisabilitiesFor use in preparing1996 ReturnsIntroductionThis publication gives you a brief introduction to certaintax laws of particular interest to people with disabilitiesand those who care for people with disabilities. It in-cludes highlights of tax laws pertaining to:●Income,●Itemized deductions, and●Tax credits.You will find most of the information you need to com-plete your tax return in your form instruction package. Ifyou need additional information, you may want to order afree tax publication. You may also want to take advan-tage of the other free tax help services that IRS provides.See How To Get More Information, near the end ofthis publication for information about getting publica-tions, forms, and free tax services.IncomeAll income that is not specifically exempt is taxable. Thefollowing discussions highlight some income items (bothtaxable and nontaxable) that are of particular interest topersons with disabilities and persons who care for peo-ple with disabilities. See Publication 525, Taxable andNontaxable Income, for more information.Dependent Care Assistance You can exclude from income benefits provided underyour employer’s qualified dependent care assistanceplan. You may be able to exclude up to $5,000. The caremust be provided for your dependent under the age of 13or your spouse or dependent who is not capable of self-care.For more information get Form 2441, Child and De-pendent Care Expenses, and instructions if you file Form1040. If you file Form 1040A, get Schedule 2 (Form1040A), Child and Dependent Care Expenses for Form1040A Filers, and the instructions. Publication 503, Childand Dependent Care Expenses, contains more detailedinformation.Social Security and Equivalent Tier 1Railroad Retirement Benefits If you received social security or equivalent tier 1 railroadretirement benefits during the year, part of the amountyou received may be taxable.Supplemental security income (SSI) payments. Ifyou received any SSI payments during the year, do notinclude these payments in your total social security ben-efits received. They are not taxable for federal incometax purposes.2Are any of your benefits taxable? If the only incomeyou received during the year was your social security orequivalent tier 1 railroad retirement benefits, your bene-fits generally are not taxable and you probably do nothave to file a return.If you received income during the year in addition tosocial security or equivalent tier 1 railroad retirementbenefits, part of your benefits generally are taxable ifyour income is more than:●$25,000 if you are single, head of household, or quali-fying widow(er),●$25,000 if you are married filing separately and livedapart from your spouse for all of the year,●$32,000 if you are married filing jointly, or●$–0– if you are married filing separately and lived withyour spouse at any time during the year.For more information, see the instructions for lines20a and 20b (Form 1040) or lines 13a and 13b (Form1040A). Publication 915, Social Security and EquivalentRailroad Retirement Benefits, contains more detailedinformation.Disability Pensions Generally, you must report as income any amount youreceive for your disability through an accident or healthinsurance plan that is paid for by your employer. If bothyou and your employer pay for the plan, report as incomeonly the amount you receive for your disability that is dueto your employer’s payments. However, certain pay-ments may not be taxable to you. Your employer shouldbe able to give you specific details about your pensionplan and tell you the amount you paid for your disabilitypension. See Publication 525 for more information.Military and Government DisabilityPensions Generally, you must report disability pensions as income.But certain military and government disability pensionsare not taxable. For more information about military andgovernment disability pensions and VA benefits see Pub-lication 525.Veterans’ benefits. Disability benefits you receive fromthe Department of Veterans Affairs (VA) are not includedin your gross income. If you are a military retiree and donot receive your disability benefits from the VA, do not in-clude in your income the amount of disability benefitsequal to the VA benefits to which you are entitled.Veterans’ benefits paid under any law, regulation, oradministrative practice that was in effect on September9, 1986, and administered by the VA are not included ingross income. These include:3●Education, training, or subsistence allowances●Grants for specially adapted homes for veterans withdisabilities●Grants for motor vehicles and adaptive equipment forveterans with disabilities.Other Payments You may receive other payments that are related to yourdisability. The following payments are not taxable.●Benefit payments from a public welfare fund, such aspayments due to blindness●Workers’ compensation for an occupational sicknessor injury●Compensatory and punitive damages for physical in-jury or illness●Disability benefits under a ‘‘no-fault’’ car insurancepolicy for loss of income or earning capacity as a re-sult of injuries●Compensation for permanent loss or loss of use of apart or function of your body, or for your permanentdisfigurement.Itemized DeductionsIf you file Form 1040, you can either claim the standarddeduction or itemize your deductions. You must useSchedule A (Form 1040) to itemize your deductions. Seeyour form instructions for information on the standard de-duction and the deductions you can itemize. The follow-ing discussions highlight some itemized deductions thatare of particular interest to persons with disabilities.Medical Expenses You can deduct medical and dental expenses for you,your spouse, and your dependents.Medical expenses include payments you make forthe diagnosis, cure, mitigation, treatment, or preventionof disease or for treatment affecting any part or functionof the body. They also include the cost of transportationfor needed medical care and payments for medicalinsurance.You can deduct only the part of your medical anddental expenses that is more than 7.5% of your adjustedgross income shown on line 32, Form 1040.In the discussions that follow, only the highlights aregiven. For more detailed information, get Publication502, Medical and Dental Expenses.4Special Items and EquipmentYour medical