Tax Incentives For Improving Accessibility

Tax Incentives For Improving Accessibility

 

Updated 11.20.04

June Isaacson Kailes MSW, Associate Director
Christie Mac Donald MPP, Senior Policy Analyst
Center for Disabilities Issues and the Health Professions
Western University of Health Sciences
309 E. Second Street, Pomona, CA 91766
Voice-909.469.5213/TTY-909.469.5520, Fax 909.469.5503, ahcs@westernu.edu

Contents of this briefing

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Introduction

There are three tax incentives available to help businesses off-set the cost of improving access to goods and services for both employees and people with disabilities (as defined by the Americans with Disabilities Act 1990). 1

  1. A. Federal – Disabled Access Tax Credit: Tax credits for the purchase of equipment and/or auxiliary aids in which the primary purpose is to provide equal access to a business’s goods and services.

    B. California – Disabled Access Tax Credit: Similar to federal tax credit, except, that under California law, allowable expenditures can not exceed $250, unlike federal which has a maximum of $10,250.

  2. Federal Tax Deduction to Remove Architectural and Transportation Barriers to People with Disabilities and Elderly Individuals: To make their places of business accessible by removing barriers e.g. providing accessible parking spaces, ramps, and curb cuts. 2
  3. The Federal Work Opportunity Tax Credit (WOTC): A tax credit that encourages employers to hire nine targeted groups of job seekers, including people with disabilities, by reducing employers’ federal income tax liability. (See CDHP Brief: Tax Incentives for Hiring People with Disabilities – forthcoming)


Federal – Small Business Tax Credits, Section 44, Title 26 IRS Code

The “Disabled Access Tax Credit” (Title 26, Internal Revenue Code, Section 44), is a tax credit for access expenditures that are incurred in order to comply with the ADA. This enables an eligible small business to elect a nonrefundable tax credit equal to half of the expenditures for eligible accommodations that are above $250. The maximum credit a business can elect for any tax year is $5,000 for eligible expenditures of $10,250 or more.

Eligible small businesses: are defined as any person (the term includes corporations) whose gross receipts for the preceding tax year did not exceed $1 million, or whose full-time employees number fewer than 30. An employee is considered full-time if he or she works at least 30 hours a week for 20 or more calendar weeks in the tax year.

Eligible access expenditures: specifically include amounts paid or incurred to acquire equipment or devices for people with disabilities.

*What expenses are covered? 3 The credit is available every year and may be used for a variety of costs such as:

  • Sign language interpreters for employees and/or customers who have hearing impairments;
  • Readers for employees and/or customers who have visual impairments;
  • Purchase of adaptive equipment or the modification of equipment;
  • Production of print materials in alternate formats (e.g., Braille, CD, audio tape, large print); and
  • Removal of barriers, in buildings and transportation, that prevents a business from being accessible to, or usable by, people with disabilities.

Accessible medical equipment:

  • Ophthalmic wheelchair access slide equipment, and
  • Accessible examination tables.

At the present time, there is an unresolved difference regarding the availability of a Federal 44 Credit for purchases of medical equipment. 4

“Most importantly for the purpose of the practitioner, Code Section 44 requires that eligible access expenditures must be reasonable and necessary to comply with the ADA requirements.” 5 Therefore, assuming the purpose of a purchase is to acquire or modify equipment or devices for people with disabilities, the purchase must be reasonably necessary to accomplish that goal.

A two-part test can be utilized to determine whether an expense is an eligible access expenditure, and thus subject to the credit.

  1. The expenditure must be for the primary purpose of complying with the ADA requirements; and
  2. The expenditure must be reasonably necessary to accomplish that purpose. 6

The Section 44 tax credit can be elected in more than one tax year. No other deduction or credit is allowed under any other IRS Code provision (for example, Section 190 [see below] of the IRS Code e.g. architectural and transportation barrier removal expenses) for the amount of the access credit. 7 This credit is taken in lieu of any deduction credit otherwise allowable for the same costs. Expenses in connection with new construction are not eligible.

To be eligible for the tax credit, barrier removals or the provision of services, modifications, materials, or equipment must meet technical standards of the ADA Accessibility Guidelines. These standards are incorporated in Department of Justice regulations implementing Title III of the ADA (28 CFR part 36; 56 CFR 35544, July 26, 1991). 8

Example: Company A purchases equipment to meet its reasonable accommodation obligation under the ADA for $8,000. The amount by which $8,000 exceeds $250 is $7,750. Fifty percent of $7,750 is $3,875. Company A 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 the ADA. The barrier removal meets the ADA Accessibility Guidelines. The company spends $12,000 on this modification. The amount by which $12,000 exceeds $250 but not $10,250 is $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. 9

How can this credit be claimed? Businesses can claim the Disabled Access Credit on IRS Form 8826. 10

*Note – Above are examples only:

Check with your tax advisor to determine the availability of federal credit and individual deductions in your state, rather than relying on a manufacturer’s statement regarding a particular piece of equipment that is “ADA approved” or qualifies as accessible.

California – 3548971 Disabled Access Credit For Eligible Small Businesses

California allows a disabled access credit which is similar to the federal disabled access credit under Internal Revenue Code (IRC) Section 44, with exceptions.

California and Federal differences: The federal disabled access credit under IRC Section 44 (cited above), and the California disabled access credit under R&TC Sections 17053.42 and 23642 are generally the same, except that:

  • The California credit is based on 50% of the eligible access expenditures with a limit up to $250 (maximum credit is $125).
  • The federal credit is based on 50% of the eligible access expenditures that exceed $250 (California limit) up to a maximum of $10,250.
  • The California credit may be carried over until exhausted. 11

Federal – Tax Deduction to Remove Architectural and Transportation Barriers to People With Disabilities and Elderly Individuals (Title 26, Internal Revenue Code, Section 190)

This deduction is an allowance for costs associated with removing barriers to people with disabilities.

A business can take an annual deduction for expenses incurred for making a facility or public transportation vehicle more accessible and usable by people with disabilities and the elderly. Businesses may take a tax deduction of up to $15,000 a year for expenses incurred to remove barriers. Amounts in excess of the $15,000 maximum annual deduction may be depreciated.

Examples may include the cost to:

  • Provide accessible parking spaces, ramps, and curb cuts;
  • Provide telephones, water fountains, and restrooms which are accessible to persons using wheelchairs; and
  • Widening walkways to at least 48 inches wide.

Eligibility: Modifications must meet the requirements of standards established by IRS regulations implementing Section 190. Additional information relating to qualified architectural and transportation barrier removal can be found in Internal Revenue Code Regulation 1.190-2. 12

Q & A:

What expenses are not covered?
The deduction may not be used for expenses incurred for new construction, or for a complete renovation of a facility or public transportation vehicle, or for the normal replacement of depreciable property.

May I use the tax credit and tax deduction together?
Small businesses may use the credit and deduction together, if the expenses incurred qualify under both Sections 44 and 190. For example, if a business spent $12,000 for access adaptations, it would qualify for a $5,000 tax credit and a $7,000 tax deduction.

Are there limits on annual usage?
Both the tax credit and deduction may be used annually.

Endnotes

  1. ADA Technical Assistance Program, Definition of disability
  2. U.S. Department of Labor, Office of Disability Employment Policy
  3. U.S. Department of Justice, Americans with Disabilities Act, FACT SHEET 4, Tax Incentives for Improving Accessibility, Series, September 4, 1998.
  4. Midmark Corporation
  5. Reliance Medical Products
  6. Reliance Medical Products
  7. Department of Justice, Title III of the ADA (28 CFR part 36; 56 CFR 35544, July 26, 1991)
  8. Department of Justice
  9. The U.S. Equal Employment Opportunity Commission, Facts About Disability-Related Tax Provisions.
  10. Internal Revenue Service, Disabled Access Credit 8826 Form
  11. California Franchise Tax Board
  12. The Internal Revenue Service, Know the Rules Regarding Tax Incentives for Improving Accessibility for the Disabled, (Headliner Volume 56 September 24, 2003)

Disclaimer: The Center for Disabilities Issues and the Health Professions does not endorse nor profit in whole nor in part, from any manufacturer or vendor whose equipment appears in this publication. Illustrations of specific equipment are provided for information and educational purposes only.

Distribution is encouraged, and permission is granted provided that:

(1) This copyright notice and citation is attached to each copy;

Kailes, J., and Mac Donald, C., Tax Incentives For Improving Accessibility, 2004. Published and distributed by the Center for Disability Issues and the Health Profession, Western University of Health Sciences, 309 E. Second Street, Pomona, CA 91766 1854, (available at www.cdihp.org/products) Email: ahcs@westernu.edu Voice-909.469.5213/TTY-909.469.5520, Fax 909.469.5503,

(2) No alterations are made to the contents of the document;

(3) The document is not sold for profit; and

(4) The Center for Disability Issues and the Health Professions is notified of such use. Please contact the Center by way of fax (909) 469-5503 or e-mail: ahcs@westernu.edu