Disability-Related Tax Provisions Applicable to Businesses

Excerpted from the ADA Handbook; Appendix G, Tax Provisions

The three disability-related provisions in the Internal Revenue Code applicable to businesses described below are of particular interest to businesses and people with disabilities:

1) Targeted Jobs Tax Credit (Title 26, Internal Revenue Code, section 51)

Employers are eligible to receive a tax credit in the amount of 40 percent of the first $6,000 of first-year wages of a new employee who has a disability. There is no credit after the first year of employment. For an employer to qualify for the credit, a worker must have been employed for at least 90 days or have completed at least 120 hours of work for the employer. The Revenue Reconciliation Act of 1990, Public Law 101-508, extended this tax credit through December 31, 1991.

2) Tax Deduction to Remove Architectural and Transportation Barriers to People with Disabilities and Elderly Individuals (Title 26, Internal Revenue Code, section 190)

Allows a deduction for "qualified architectural and transportation barrier removal expenses." Only expenditures that are for the purpose of making any facility or public transportation vehicle owned or leased by the tax payer for use in connection with his or her trade or business more accessible to, and usable by, handicapped and elderly individuals are eligible for the deduction. The taxpayer must establish, to the satisfaction of the Secretary of the Treasury, that the resulting removal of the barrier meets the standards promulgated by the Secretary with the concurrence of the U.S. Architectural and Transportation Barriers Compliance Board.

For purposes of this section, a "handicapped individual" is any individual who has a physical or mental disability (including, but not limited tot deafness and blindness) which, for that individual, constitutes or results in a functional limitation to employment, or who has any physical or mental impairment that substantially limits one or more major life activities of that individual.

The deduction may not exceed $15,000 for any taxable year. (The maximum deduction had been $35,000 prior to passage of Public Law 101-508 in 1990, which lowered the maximum deduction.)

3) Disabled Access Tax Credit (Title 26, Internal Revenue Code, section 44)

This tax credit is available to "eligible small businesses" in the amount of 50 percent of "eligible access expenditures" for the taxable year that exceed $250 but do not exceed $10,250.

"Eligible small businesses" are those businesses with either:

a) $1 million or less in gross receipts for the preceding tax year


b) 30 or fewer full-time employees during the preceding tax year.

"Eligible access expenditures" means amounts paid or incurred by an eligible small business for the purpose of enabling the small business to comply with applicable requirements under ADA. Certain types of expenditures are listed as included under the meaning of the term "eligible access expenditures." These include amounts paid or incurred:

i) for the purpose of removing architectural, communication, physical, or transportation barriers that prevent a business from being accessible to, or usable by, individuals with disabilities;

ii) to provide qualified readers, taped texts, and other effective methods of making visually delivered materials available to people with visual impairments;

iii) to provide qualified interpreters or other effective methods of making aurally delivered materials available to individuals with hearing impairments;

iv) to acquire or modify equipment, or devices for individuals with disabilities, or

v) to provide other similar services, modifications, materials, or equipment.

Expenditures that are not necessary to accomplish the above mentioned purposes are not eligible. Expenses in connection with new construction are not eligible. "Disability" has the same meaning as it does in the ADA. Barrier removals or the provision of services, modifications, materials, or equipment must meet standards promulgated by the Secretary in order to be eligible.

Example: Company A purchases equipment to meet its reasonable accommodation obligation under ADA for $8,000. The amount by which $8,000 exceeds $250 is $7,750. Fifty percent of $7,750 is $3,875. The employer may take a tax credit in the amount of $3,875 on its next tax return.

Example: Company B removes a physical barrier in accordance with its reasonable accommodation obligation under ADA. The barrier removal meets standards promulgated by the Secretary.

The company expends $12,000 on this barrier removal. The amount by which $12,000 exceeds $250 but not $10,250 is a full $10,000. Fifty percent of $10,000 is $5,000. Company B is eligible for a $5,000 tax credit on its next tax return.


For further information on these provisions, contact the
Internal Revenue Service
Office of the Chief Counsel
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
(202) 566-3292 (voice only).