For employers who need to make their place of business more accessible as their headcount grows, it could make a lot of sense to get familiar with the disabled access tax credit.
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Key takeaways
- Learn about the IRS’ disabled access tax credit and how it works.
- Understand the eligibility requirements of the disabled access tax credit.
- Get a step-by-step breakdown of how to apply for the credit.
If this is the first time you’re heard about this credit and you’re unsure if your company is eligible, it will take time to understand everything. In this guide, we’ll cover how the disabled access tax credit can lower your small business’s tax liability, how to apply, and the eligibility requirements to keep in mind.
What is the disabled access credit?
In a nutshell, the disabled access tax credit is a non-refundable small business tax credit for businesses that incur expenses from providing access to individuals with disabilities. Eligible businesses may take the credit every year they incur access expenditures using Form 8826. This tax credit is worth 50 percent of each eligible dollar spent, rather than a one-to-one dollar value.
Now that we better understand the nature of the credit, let’s find out which employers may be eligible for it.
Eligibility requirements
The disabled access tax credit is not available to all businesses. It’s reserved for businesses that meet certain small business criteria: They must have earned $1 million or less or had no more than 30 full-time employees in the previous year. Moreover, they may only take the credit based on qualified access expenses.
Qualified access expenses include those that exhibit the following characteristics:
- They are made to remove access barriers that keep the business from being usable by individuals with disabilities
- They are made to provide interpreters or other audio materials to the hearing-impaired
- They are made to provide qualified readers, taped texts, or other facilitation methods for the vision-impaired
- They are made to acquire or modify equipment or devices for use by individuals with disabilities
The IRS says that all expenditures must be “reasonable and necessary” to address any of the above issues. Additionally, the IRS characterizes a disability as follows:
- A physical or mental impairment that significantly limits major life activities
- There is a record of such an impairment
While the IRS won’t expect you to file doctor’s notes or documentation of any employee’s disability, you’ll have to keep meticulous records of eligible access expenditures. That’s because these qualified expenses are what the IRS uses to calculate your tax credit eligibility and determine your final tax bill for the year.
Amount of the credit
The disabled access tax credit is worth up to $5,000 of qualified expenses. However, the IRS also offers an architectural barrier removal tax deduction that businesses can also claim. This credit allows businesses of all sizes to claim a tax deduction of up to $15,000 per year for qualified expenses incurred to remove architectural and transportation barriers that assist individuals with disabilities and the elderly to move around more easily. Businesses may claim the credit and the deduction in the same year, if they’ve incurred expenses that meet both requirements.
Limitations and caps
The disabled access credit is capped at $5,000 for qualified businesses, but you cannot claim the first $250 of expenses. Moreover, you cannot claim a credit for any improvements that didn’t cost your business any money. The credit may only be claimed on eligible access expenditures; so, you’ll have to keep detailed records of any improvements to include with your tax filing.
It’s also important to note that this credit is worth 50 percent of eligible access expenses, up to a maximum of $10,250. You cannot claim $10,250, but you can claim 50 percent of every dollar spent up to that amount.
Forms and documentation
Moving on to paperwork, the forms and documentation necessary to file the disabled access tax credit are fairly straightforward. You must file the credit on IRS Form 8826, which includes instructions for how to make claims. In addition, you’ll have to include documentation of all the eligible reasonable accommodations improvements you’ve made.
This may include the following items:
- Receipts from construction work
- Documentation of the improved area before and after
- Necessary tax and employee records to verify that your business qualifies for the credit.
Working with a tax professional will make it easier to correctly claim the disabled access credit and ensure you stay compliant with IRS guidelines.
Claiming the disabled access credit
Eligible businesses can claim the disabled access credit each and every year they incur qualified access expenses that provide reasonable accommodation improvements for disabled individuals.
A tax credit reduces your overall tax bill. That’s an important distinction from a tax deduction, which lowers the amount of a business’ taxable income. While a deduction can indirectly lower your tax bill, a credit directly reduces your tax obligation, making the latter financially superior (in most cases).
Steps to apply for the credit
Applying for the disabled access credit is fairly straightforward, but it’s advisable to work with a tax professional when filing your business’ taxes. Below, we break down the basic step-by-step process of filing for the disabled access credit.
Gathering necessary information
Before you file, make sure you have all the necessary information about your business to verify that you qualify. This includes information about revenues and employees, as well as any necessary documentation to explain why you had to make the improvements that you did. You shouldn’t need doctor’s notes or other documentation to verify employee disability, but you will need to provide records of the changes and expenditures made.
Filling out the application
Form 8826 is a fairly simple form by IRS standards. Using the worksheet provided, you can fill it out yourself. Alternatively, you can provide the necessary documentation to a tax professional to complete the form for you. Once it’s completed, add the form as an addendum to your year-end tax return.
Submission process
Submitting and claiming the disabled access tax credit is very easy. As noted above, you just need to include Form 8826 with your year-end tax filing. Assuming the information provided is comprehensive and all computations are accurate, the credit will be applied to reduce your overall tax liability. For any given year, the total benefit could be up to $5,000.
Get the details about the disabled access credit
From health insurance to 401(k)s for SMBs, there are many benefits that small business owners can provide their employees. That said, providing access that employees with disabilities need to be comfortable and thrive at work is one of the most meaningful messages you can send to a workforce. That said, making accessibility changes often adds up to extra costs, which may deter small businesses with P&L challenges or liquidity constraints. With the disabled access credit, it’s much more cost-effective for small businesses to make the updates and renovations necessary to support individuals with disabilities.
Check out OnPay for information on how to take advantage of many more tax credits. Our tools can also help you run payroll more efficiently, stay compliant on the HR front, and set up an employee benefits program your entire team will love.
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