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Accidents Happen!01.13.14

We all hear about the tax implications of a disaster, either natural or man-made, but what about an accident? What are the tax implications of an injury you might have?

Deductible medical expenses
If you are in an accident and have medical expenses, you may be able to deduct your medical expenses on your tax return.  Keep track of all the unreimbursed, out of pocket expenses you have related to your hospital, doctors, lab tests, medicine and any miles you drive for each of these.

When you combine these unexpected expenses with your planned medical expenses for the year, you may be able to deduct a portion of your expenses.

The injured might be a dependent for tax purposes
We traditionally consider the cost of daycare for a child as the only eligible expense for the Credit for Child and Dependent Care.  However, if you, your spouse, or a dependent are unable to care for themselves, the cost of care while you work, or care for you while a spouse works, may be eligible for a tax credit.

The individual being cared for must not be able to care for themselves and require someone to help.  The expenses up to $2,400 ($4,800 if more than one individual) are eligible for the credit.  If you need a health care professional to provide the care, the additional expenses above the $2,400 ($4,800 if more than one individual) is generally eligible for the medical expense deduction.

Tax implications of disability coverage
When the injuries from an accident are so severe, a taxpayer is placed on disability, there are many different tax ramifications based on the type of disability.  

  • An employee who is able to receive short-term disability while they are healing is considered to be receiving wages and the income is included on the W-2 from their employer. 
  • Long term disability payments may not be taxed if you were able to include the cost of your long-term disability insurance in your taxable income, the payments you receive from the insurance company may be tax-free. 
  • If you receive disability income from the Social Security Administration it is treated the same as retirement benefits, up to 85 percent of the benefits may be taxable based on your total income. 

Taxability of the various types of disability benefits can be extremely confusing.  Seek help from a Tax Professional if you have any type of disability income.

Deducting loss of property
You may also be able to deduct the loss in value of your property involved in the accident.  Yes, if your loss is greater than your insurance reimbursement you may be able to deduct a part of the loss on your tax return.

The rules for claiming a tax deduction for a loss from an accident are similar to those of a casualty.  You must subtract $100 from each loss and 10 percent of your adjusted gross income from your total losses for the year.  The remaining loss is claimed as part of your itemized deductions.

If you had an accident this year and have disability income or a potential tax deduction due to your accident, stop in to see your local Jackson Hewitt Tax Pro to make sure you don’t leave any of your hard earned cash on the table.