Academic journal article Journal of Accountancy

Potential Income Tax Benefits for Families with Special Needs Children: Disabled Children Can Qualify for Dependency Exemption and Other Benefits Regardless of Age

Academic journal article Journal of Accountancy

Potential Income Tax Benefits for Families with Special Needs Children: Disabled Children Can Qualify for Dependency Exemption and Other Benefits Regardless of Age

Article excerpt


* 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.


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 thou sands, 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.


A taxpayer may claim a dependency exemption ($3,900 for 2013), for a "qualifying child" or a "qualifying relative 2 With passage of the Working Families Tax Relief Act of 2004, P.L. 108-311 (effective 2005), the definition of a "qualifying child" and "qualifying relative" in Sec. 152(a) was amended to provide a uniform definition for purposes of the dependency exemption and for the child tax, dependent care, and earned income tax credits.

Under the definition, to be a qualifying child, in addition to meeting the relationship test (taxpayer's child, stepchild, eligible foster child, adopted child, or descendant (e.g., grandchild), or taxpayer's brother, sister, stepbrother, stepsister, or their descendant (e.g., niece, nephew)), an individual (See. 152(c)) must meet any one of the following three requirements (the so-called age test). Either the individual must be under the age of 19 at year end; the individual must be a student under the age of 24 at the end of the year (to be a student the individual must be enrolled as a full-time student during some part of five calendar months during the year); or the individual must be totally and permanently disabled at any time during the year (See. 152(c)(3)(B)). Furthermore, while Sec. 152(c)(3) was amended for tax years beginning in 2009 to require that the qualifying child be younger than the individual claiming the dependency exemption, this rule does not apply to a child who is permanently and totally disabled. …

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