ADA tax credit: A little-known tax credit for small businesses

The Americans with Disabilities Act (ADA) is a legislation aimed at guaranteeing equal rights and opportunities for individuals with disabilities. It is commonly associated with physical accessibility measures like ramps and accessible bathrooms, however, its significance in the digital sphere is often unnoticed.

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In this article, we will explain the significance of ADA compliance in digital contexts, with a focus on how businesses can leverage the ADA tax credit through comprehensive accessibility measures and gain up to $5000 tax credit along with special immediate expensing methods. 

What are the benefits of the ADA tax credit? 

The ADA tax credit, found in Section 44 of the IRS Code, is intended to aid businesses in implementing accessible practices in line with the ADA. 

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This tax credit covers 50% of eligible access expenditures incurred in the previous tax year, up to a maximum expenditure limit of $10,250. However, the first $250 of expenditures is not eligible for the credit. Therefore, the maximum credit for a business is $5,000.

Let's say a business spends $8,000 on an accessibility solution like accessWidget for ADA web compliance. After subtracting the initial $250, the remaining $7,750 is eligible for the tax credit. The business would receive 50% of $7,750, which amounts to $3,875 in credit. Therefore, the business would only pay $4,125 per year for accessWidget. 

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In addition to this, the remaining amount can be immediately expenses under IRC 190 (up to a $15,000 limit)!  The little-known Code Section is important to understand, as otherwise the items may be improperly depreciated over a 5-year period. 

Who is eligible for the ADA tax credit?

To qualify for the ADA tax credit, businesses need to meet specific criteria. This credit is accessible to businesses with annual revenues of $1,000,000 OR less or those employing 30 or fewer full-time workers in the previous year. This inclusive approach ensures that businesses of varying sizes can benefit from this valuable incentive. 

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For example, a business with $1,500,000 in revenue but 5 FTEs would qualify for the credit, but a business with $1,500,000 in revenue and 31 FTEs would not. 

How to utilize ADA tax credit through web accessibility?

Websites, apps, and digital items serve as essential platforms offering information, services, and products to diverse users. Websites must be accessible to individuals with disabilities, allowing them to navigate, interact, and engage with online content effectively. 

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The ADA tax credit does apply to businesses that invest in web accessibility solutions. 

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A range of accessibility practices and implementation methods are included in the list of qualifying expenditures for the ADA tax credit. These include homepage adjustments, page structure and hierarchy, live chat support, and messaging. Paid-for services such as file and media accessibility also qualify as expenditures.  

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As always, these items should be discussed with your tax advisor as every business may implement these items differently. 

How is the ADA tax credit claimed?

Claiming the ADA tax credit is a straightforward process. The steps are:

1. Throughout the year, track all eligible expenses. Unsure?  Most companies will be able to tell you if the purchase in question is ADA-eligible or not. 
2. Confirm your business's eligibility for the tax credit based on the criteria laid out above.
3. Submit eligible information to your tax preparer and they will complete Form 8826.
4. Consult with a CPA or tax strategist to ensure accuracy and compliance.
   
   

One crucial point is to consult with a CPA or tax strategist to ensure accuracy and compliance. They will guide you through the application process and help you determine the appropriate amount spent on accessibility efforts.

Putting it together: ADA tax credits for web accessibility

Digital accessibility is crucial for modern businesses. The ADA tax credit offers a valuable incentive for businesses to demonstrate their commitment to inclusivity, enhance user experience, and achieve substantial tax savings. 

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Don’t fall into the trap of thinking the ADA credit is only available to businesses with physical infrastructure.  Today’s dynamic workplace presents opportunities for digital businesses to claim this credit when they open up their virtual doors to ADA compliance. 

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By integrating accessible practices and complying with ADA regulations, businesses create an inclusive online environment that benefits individuals with disabilities and expands their customer base.

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The information provided in this article does not constitute accounting, legal or financial advice and is for general informational purposes only. Please contact an accountant, attorney, or financial advisor to obtain advice with respect to your business.

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