11/10/2021
This was reprinted in an article forwarded to me. It is great tax information for parents with special needs children. The author is credited below.
Tax Benefit Checklist for Families Caring for Special Needs Children
√ Deducting the cost of a Special School or Institution
What is a Special School?
• Schools with programs to “mainstream” children with neurological disabilities (i.e., autism spectrum disorders).
What is deductible?
• Lodging
• Meals
• Transportation
• Incidental educational costs provided by the institution
• Costs of supervision, care, treatment, and training
When can regular Schools be classified as a “Special School” for an individual?
• Where School has special curriculum for neurologically disabled individual.
Private tutoring by a specially trained teacher-
• Therapeutic and behavioral support services
(see Revenue Rulings 70-285 and 78-340)
Special education for dyslexic children
• Provided program enables children to deal with disability caused by medical condition (2005’s Letter Ruling 200521003)
√ Deduction for Medical Conferences and Seminars
• Both transportation and conference fees deductible
(under Revenue Ruling 2000-24)
√ Special Diet Foods
- Generally, only the cost of special diet food over and above normal food (i.e., the premium; see Revenue Rulings 02-19 and 55-261)
√ 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 2021 tax returns: .16 per mile (17 cents per mile for 2020)
• Lodging costs (but not meals) up to $50 per day are deductible for the TP and one additional person if an overnight stay is necessary.
Note: Un-reimbursed Medical Expenses are deductible only to the extent the TaxPayer itemizes their deductions (Schedule A) and they exceed 7.5% of AGI.
√ Consider FSA Health Care Plan if ineligible for medical expense deduction!
However, the maximum pre-tax contribution is $2,750 for 2020 and 2021 (was $2,700 for 2019). The CARES Act of 2020 now allows individuals enrolled in these pre-tax accounts to pay for OTC drugs and medicines without a prescription (no current expiration date).
√ Impairment Related Work Expenses
• Business deduction in lieu of a medical deduction for attendant care services at place of employment (ordinary and necessary expense to help in performing job).
• Avoids AGI limitation imposed on un-reimbursed medical expenses.
• NOT subject to prior law’s 2% AGI limitation imposed on un-reimbursed employee business expenses.
√ Expanded definition of a “qualifying child”
• An individual with special needs can be older than 19 or 24 and qualify as a “dependent”.
• No gross income limitation for a “qualifying child” (The “gross income” limitation applies to a “qualifying relative” and is $4,300 for 2020 and 2021 ..review ALL requirements!).
√ Credit for Special Needs Adoption Expenses
• $14,440 for a child with special needs in 2021 ($14,300 for 2020) regardless of adoption expenses.
• An eligible child is an individual who is under the age of 18, or is physically or mentally incapable of self-care.
• Must be a U.S. citizen or resident and requiring adoption assistance as determined by state authorities.
• Qualifying expenses include: legal fees, court costs, and other related adoption costs.
• The limit is per child, not per year (The credit is non-refundable with a c/o of 5 years).
• Credit is phased-out for taxpayers with adjusted gross income exceeding $216,660 ($214,520 in 2020).
• The credit is completely phased-out at $40,000 above the threshold.
• For a “special needs” adoption, the credit is claimed in the year the adoption becomes finalized regardless of actual expenses paid or incurred in the year the adoption becomes final.
√ 10% Penalty Exception for Retirement Plan and IRA Distributions
• 10% penalty does not apply to a distribution that is less than or equal to the allowable medical expense deduction on Schedule A (regardless of whether the individual actually itemizes deductions) if the distributions are used to pay for the medical care during the year.
• Penalty waiver only applies to taxable amount of the distribution. The income tax still applies to the taxable component of the distribution.
Where to Get More Information
Contact a CPA or an attorney specializing in special needs planning, or a financial planner with a practice focusing on families caring for those with special needs.
This handy checklist was created by:
Thomas M. Brinker, Jr., LL.M., CPA
Professor of Accounting
Arcadia University
