Tax Credits for Families Raising Children Who have Disabilities

April 15 will be here before we know it, and many people will be scrambling to file their 2008 taxes. Do you know what this means for your family? There are many credits taxpayers may take for various life events that often go overlooked.

If you have a child with a severe learning disability (LD), you may qualify for valuable tax benefits. If your child has AD/HD or other physical, mental or emotional impairments, you may also qualify for tax benefits. Because tax laws are complex and many tax preparers often do not have occasion to use these unique tax benefits, families are at risk of losing refunds worth thousands of dollars. It's likely that 15% to 30% of families with a disabled child have one or more unclaimed tax benefits.

Below are just a few credits specifically for families, taken from the Internal Revenue Service website (www.irs.gov).

Medical Deductions

A taxpayer may claim a deduction for medical expenses of the taxpayer or the taxpayer's dependents. Section 1.213-1(e)(1)(v)(a) of the Department of the Treasury regulations provides, in part, that while ordinary education is not medical care, the cost of medical care includes the cost of attending a special school for a mentally or physically handicapped individual, if his condition is such that the resources of the institution for alleviating such mental or physical handicap are a principal reason for his presence there. As such, the IRS has ruled that tuition and transportation costs for a special school that has a program designed to educate children with learning disabilities and amounts paid for a child's tutoring by a teacher specially trained and qualified to deal with severe learning disabilities may also be deducted. (Revenue Ruling 78-340, 1978-2 C.B. 124.) Special instruction, training or therapy, such as Braille, lipreading, sign language instruction, speech therapy and remedial reading instruction, would also be deductible. Related books and materials can qualify for the medical expense deduction. IRS Private Letter Ruling 8616069 (1985 PLR L 41) discusses what types of conditions and instruction may not qualify.

Generally, for families to qualify for the deduction, the child's doctor must recommend the special school, therapy or tutoring, and there must be a medical diagnosis of a neurological disorder, such as a severe learning disability, made by a medical professional. Transportation expenses for the special school or the tutor also qualify for a medical expense deduction. If transportation is by car, the allowable expense in 2008 is 19 cents per mile (for miles driven from January 1 to June 30) and 27 cents per mile (from July 1 to December 31), or the actual cost of operating the vehicle.

The following expenses may qualify for the deduction if a medical professional recommends the service or treatment for the child and there is a medical diagnosis of a neurological disorder, such as a severe learning disability.

• Tuition for a private school

• Tutoring

• Specialized materials (e.g., books software and instructional materials)

• Diagnostic evaluations (by a private practitioner)

• Therapy

• Transportation expenses for a private school or tutor

Health Savings Accounts and Flexible Savings Arrangements

An FSA can be part of a "cafeteria plan" of alternative fringe benefits offered by an employer. An employee can allocate pretax income to the account and then withdraw it during the year to pay for medical expenses. Employers may also make contributions to the FSA, and the maximum amount is set by the terms of the employer plan. Two important conditions are:

• The amount to be placed in the account must be determined by the employee at the beginning of the year.

• Funds in the FSA that are not used by the end of the year are lost. However, a recent amendment allows a onetime transfer of FSA funds to a HSA.

Deductions for Disability Related Conferences

In May 2000 the IRS issued Revenue Ruling 2000-24, which offers guidance ? and good news ? for parents of children with disabilities. Parents who attend conferences to obtain medical information concerning treatment for and care of their child may deduct some of the costs of attending a medical conference related to a dependent's chronic health condition. The important points to remember are:

• Medical expenses are deductible only to the extent that they exceed 7.5% of an individual's adjusted gross income, and that limitation applies to this deduction as well;

• Costs of admission and transportation to a medical conference related to your dependent's chronic health condition are now deductible, if the costs are primarily for and essential to the care of the dependent.

• Costs of meals and lodging related to a conference, however, are not deductible. (Note, however, that lodging ? up to $50 per night ? is deductible if you must travel and stay at a hotel while your dependent is receiving medical treatment from a licensed physician in a hospital or a related or equivalent setting.)

• Costs are "primarily for and essential to the care of the dependent" (and therefore deductible) if:

  • The parent attends the conference upon the recommendation of a medical provider treating the child;

  • The conference disseminates medical information concerning the child's condition that may be useful in making decisions about the treatment or care of the child;

  • The primary purpose of the visit is to attend the conference. While at the conference, the parent's social and recreational activities in the city he or she is visiting are secondary to attendance at the conference;

  • The primary purpose of the visit is to attend the conference. While at the conference, the parent's social and recreational activities in the city he or she is visiting are secondary to attendance at the conference.