Responding to feedback from disability advocates, the Internal Revenue Service announced November 20 it would loosen some of the reporting requirements for a new form of savings account designed to provide for long-term disability services.
Last December, President Obama signed into law the Achieving a Better Life Experience (ABLE) Act. The legislation allows people to contribute up to $14,000 annually, to a maximum of $100,000, into a special tax-free savings account for people with disabilities, without jeopardizing eligibility for means-tested federal benefits programs such as Medicaid or Supplemental Security Income.
To implement the legislation, the IRS issued proposed regulations in June, which have not yet been finalized. While generally supportive, disability advocates contended that many of the reporting requirements were unduly burdensome. As a result, the IRS made three major changes.
Specifically, the IRS scaled back a requirement that contributors, prior to transferring money into the accounts, distinguish whether their contributions are tax-exempt “qualified disability expenses,” or separate contributions. Rather the beneficiaries will have to make these contributions when determining their federal income tax obligations.
The IRS also reversed course on a requirement that contributors be required to provide their taxpayer identification numbers prior to making their contributions. An exception applies if they contribute more than is allowed under the statutory limits.
Finally, the IRS will not force beneficiaries to submit medical documentation when setting up their ABLE Accounts. Rather they will only be required to sign a form, under a penalty of perjury, that they have a qualifying disability.
Thus far, 40 states have passed legislation implementing state-level requirements for the ABLE Act, while awaiting for the IRS to issue final regulations.