(Journal of Accountancy, By Thomas M. Brinker Jr., CPA/PFS, J.D. and W. Richard Sherman, CPA, J.D.; Published June 2013)
As the number of children diagnosed with autism, Asperger’s syndrome, and other neurological disorders continues to skyrocket, the disruption it causes in the lives of all those concerned is unmistakable—as are the costs of providing care for the special needs child. As reported by the Autism and Developmental Disabilities Monitoring (ADDM) Network in March 2012, as many as 1 out of 88 children born today has an autism spectrum disorder or ASD. And a report by the Centers for Disease Control and Prevention (CDC) has estimated that rate is as high as 1 in 50. Other disabilities are also becoming more prevalent, according to the CDC. Between 1997–1999 and 2006–2008, there was an 18.2% increase in blindness/sight impairment among children age 3 to 17, a 9.1% increase in seizures, and a 24.7% increase in “other developmental delay” (which excludes autism, attention deficit hyperactivity disorder, and learning disabilities).
Further complicating the situation, parents with special needs children are often unaware of possible tax benefits that are available and forgo hundreds, if not thousands, of dollars in potential tax deductions and credits. Michael A. O’Connor, an attorney who has written extensively on this topic, believes that 15% to 30% of families with a disabled child have one or more unclaimed tax benefits. Among these potential tax benefits are deductions or credits for the dependency exemption, medical expenses, special instruction, capital expenditures for medically required home improvements, impairment-related work expenditures, and the earned income tax credit.
Tax Benefit Checklist for Families Caring for Special Needs Children
Deducting the cost of a special school or institution
What is a special school?
- A school is a special school if the ordinary education it furnishes is incidental to the special services it furnishes. Thus, the curriculum of a special school may include some ordinary education, but this must be incidental to the school’s primary purpose to enable the student to compensate for or overcome a handicap, to prepare him or her for future normal education and living.
What are some examples of a special school?
- Schools with programs to “mainstream” children with neurological disabilities (e.g., autism spectrum disorders) and schools that teach Braille, lip reading, or sign language.
What costs of a special school are deductible?
- Incidental educational costs provided by the institution; and
- Costs of supervision, care, treatment, and training.
When can regular schools be classified as a “special school” for an individual?
- A school that has a special curriculum for the disabled individual can be classified as a special school for that individual (Rev. Rul. 70-285).
What private tutoring by a specially trained teacher is deductible?
- The costs for tutoring by a teacher who is specially trained and qualified to deal with severe learning disabilities are deductible, provided the child’s doctor recommended such tutoring (Rev. Rul. 78-340).
When is special education for dyslexic children deductible?
- Dyslexia is a medical condition that handicaps the child’s ability to learn. Therefore, if a child is diagnosed with dyslexia, the costs of special education to overcome dyslexia are deductible medical care expenses (Letter Ruling 200521003).
Deduction for medical conferences and seminars
- Both transportation and admission fees to qualifying medical conferences or seminars are deductible, but lodging and meals are not (Rev. Rul. 2000-24).
Prescribed vitamin therapy; hyperbaric oxygen therapy; chelation therapy; equestrian therapy; individualized or group art, dance, music, and play therapies; summer camps, etc.
Medical travel and transportation
- For 2013 tax returns: 24 cents per mile.
- For 2012 tax returns: 23 cents per mile.
- Lodging costs (but not meals) up to $50 per day are deductible for the taxpayer and one additional person if an overnight stay is necessary.
Consider FSA health care plan if ineligible for medical expense deduction
Impairment-related work expenses
- Business deduction for attendant care services at place of employment (ordinary and necessary expense to help in performing job).
- Not subject to 2%-of-AGI limitation imposed on unreimbursed employee business expenses.
- Special needs individual can be any age and claimed as a dependent.
- No gross income limitation for a “qualifying child.”
- Prior to 2009, a taxpayer could claim a dependency exemption for an older sibling. This option is not available for tax years beginning in 2009 and later unless the older sibling is permanently and totally disabled (Fostering Connections to Success and Increasing Adoptions Act of 2008, P.L. 110-351).
Credit for special needs adoption expenses
- $12,970 for a special needs child ($12,650 in 2012), regardless of adoption expenses.
- Must be a U.S. citizen or resident who requires adoption assistance.
- Qualifying expenses include legal fees, court costs, and other adoption-related costs.
- The limit is per child, not per year (the credit was refundable for 2010 and 2011 only; for pre-2010 credits and post-2011 credits, the credit is nonrefundable with a carryover of five years).
- Credit phases out for taxpayers with AGI exceeding $194,850 ($189,710 in 2012); the credit is phased out completely at $40,000 above the threshold.
- The number of disabled children has increased in recent years as has the cost of caring for them.
- Practitioners should know about the tax benefits available to parents or other qualifying relatives for some of these costs, a number of which are deductible as medical expenses, above a certain floor.
- The costs of modifying a house to be handicapped-accessible as well as the cost of attending a special school are examples of costs deductible as medical expenses.
- Disabled children qualify for dependency exemptions and other tax benefits (e.g., child tax credits, earned income tax credit) no matter how old they are as long as they live at home with their parents or other qualifying relative.
- Disabled adults can deduct impairment-related work expenses for the cost of attendant care services and other expenses that permit them to work at their place of employment. These expenses are not subject to the 2%-of-AGI floor on itemized deductions.
Thomas M. Brinker Jr. is a professor of accounting at Arcadia University in Glenside, Pa. W. Richard Sherman is a professor of accounting at Saint Joseph’s University in Philadelphia.