Why Should People With Disabilities File A Tax Return If They Are Not Required To?
By Judy Stengel
National Resource Manager
National Disability Institute
Real Economic Impact Tour

Why would anyone want to file a tax return if they are not required to file one?  It’s time consuming.  The law says it’s voluntary.  Filing might jeopardize public benefits.  All of these sound like legitimate reasons not to file.  But, people with disabilities who have earned income should file for one very important reason – to apply for all the credits available to them in the tax code.

People with disabilities experience some of the highest rates of poverty in our nation. Almost three times as many adults with disabilities live in households with total income of $15,000 or less than adults without disabilities. Less than 50% of people with disabilities own homes compared to 71% of those without disabilities.

Numerous barriers contribute to this condition, but there are also provisions in the laws that benefit people with disabilities and as a result help alleviate some of this poverty. The key is awareness and education about the availability of programs, including tax credits and asset building strategies.

The Earned Income Tax Credit (EITC) was legislated in 1976 as an effort to combat poverty. For nearly twenty years only people with children could claim the credit; however, in 1994 individuals without a qualifying child became eligible to receive EITC. While the $438 maximum credit available to these people for 2008 is not a great amount of money, it is a nice supplement for individuals who are dependent on SSDI and SSI for their basic support.  It might be just the amount an individual needs to move from a group home to an independent apartment.  Or, it might buy a TV set for their room so they don’t have to watch what everyone else in the group home is watching.

In December 2001, the General Accounting Office (GAO) published a research paper citing data from the Census Bureau's Current Population Survey for 1999 approximating the number of households eligible for EITC. Using Internal Revenue Service (IRS) data they estimated the number of eligible taxpayers who claimed this credit. The report indicated that of the individuals without a qualifying child who earned less than $10,200 (the maximum earned income for 1999), only 44.7% ±3.9% actually claimed the credit.

From the GAO report I drew the conclusion that one group of people, who may not have qualifying children but may earn less than $10,200 (2003 figure) ($12,880 for 2008, $15,880 if married filing a joint return), are people who are drawing some Social Security Disability Income (SSDI) and/or Supplemental Security Income (SSI). I thought of people like my son, an adult with a disability who worked in a sheltered workshop where pay is based on piecework rather than hours worked. They may be individuals whose disability allows them only sporadic earnings to supplement the SSDI and SSI.

Armed with this hypothesis I approached Marilyn, a Volunteer Income Tax Assistance (VITA) assistor, at Episcopal Social Services (ESS) in Wichita, Kansas. EES provides case management and representative payee assistance, among other services. I asked Marilyn to talk with case managers and rep. payees and request that the individuals they assist who have some earnings but not enough to be required to file a tax return, be sent to her for help. For tax year 2003, 52% of the returns that Marilyn prepared were for individuals without a qualifying child and with income so low they did not have to file a tax return. However, by filing the return they received $9,915 in EITC, an average of $171 each plus an additional average of $26 for the state of Kansas EITC. The ones who had earnings in any of the three prior years but did not claim the EITC were eligible to file returns for those years.

It was from this humble beginning that a new way thinking about helping people with disabilities was born.  In the summer of 2003, I was invited to spend a “Day with the Directors” and present a “best practice” idea to IRS managers in Atlanta, Georgia. I developed a presentation using the data from the GAO report and my “theory” that single lower income wage earners who had a disability were not filing federal income tax returns and consequently not receiving the EITC because they were not required to file.  I suggested to the managers that day that the VITA volunteers could be sent to sheltered workshops and other places to assist people with disabilities with their filing for available tax refunds. It just so happened that in that group of IRS managers there was a core team of IRS specialists working to improve access to IRS services and to promote products that were aimed at taxpayers who were low-income, limited English proficiency, and persons with disabilities. 

In one agency where nine low-income adults worked and had not previously filed federal returns, the agency provided W-2s for the prior three years. I prepared the returns for those years making sure to take extra time and explain everything on the tax form. I use the term “reward for working” instead of “refund” when they are getting EITC. Those nine people collectively received over $1,700 in prior year EITC refunds. 

Does this EITC refund jeopardize SSI and/or SSDI?  By law it is not counted as income when it is received.  It may be counted as a resource if held longer than a specific period of time.  Please see the “Benefits Interaction Chart” at the end of this article.

Helping people with disabilities who have earned income, their advocates, families, and case workers understand the advantage of filing a federal income tax return even when they don’t have a filing requirement, has become one focus of the Real Economic Impact Tour – www.reitour.org.  This along with other asset building strategies is Building a Better Economic Future for Americans with Disabilities.