Magazine article The Exceptional Parent

Revisiting Tax Benefits for Parents of Children with Special Needs, Part 2

Magazine article The Exceptional Parent

Revisiting Tax Benefits for Parents of Children with Special Needs, Part 2

Article excerpt

The Center for Disease Control (CDC) estimates that up to 500,000 individuals under the age of 21 have autism, Asperger's syndrome, and other neurological disorders. This translates to an average of 1 in 110 children in the U.S. having an Autism Spectrum Disorder (http://www.cdc.gov/ncbddd/autism/data.html). Autism is now the sixth most commonly classified disability in the United States. These increasing numbers are already beginning to impact state and local governmentally funded programs as they face shortfalls, forcing parents to absorb more of their children's medical care and other related expenses.

The disruption of the lives of all those concerned is unmistakable--as are the costs of providing care for the special needs child. Further complicating the situation, parents with special needs children are often unaware of the substantial tax benefits that are available to them and forego hundreds, if not thousands, of potential tax deductions and reductions in their tax liability. Michael A. O'Connor, an attorney who has written extensively on this topic, believes that 15-30 percent of families with a disabled child have one or more unclaimed tax benefits (http://wrights law.com/info/tax.2006.benefits.oconnor.htm). Among these potential tax benefits are deductions or credits for medical expenses, special instruction, child and dependent care, and adoption costs. This article outlines some of the tax aspects of caring for children with special needs.

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Medical Expense Deduction for Medical Conferences and Seminars

Parents of special needs children often attend medical conferences and seminars in order to learn more about their child's disability. The amounts paid for the registration fees and travel expenses are deductible as medical expenses (Revenue Ruling 2000-24, 2000-19 I.R.B. 963). However, parents should obtain the recommendation of their child's doctor to insure their medical deduction. In addition, the deduction may not extend to any meals and/or lodging costs incurred while attending the conference. Furthermore, the conference or seminar must deal specifically with the medical condition from which the child suffers, not just general health and well-being issues. As with the special instruction and other medical expenses, the aggregate amount of all medical expenses incurred must exceed 7.5% of the taxpayers' AGI to be deductible.

Child Tax Credit

In addition to the aforementioned deductions, certain credits may also be available to parents of special needs children. The most common of these credits is the $1,000 credit which is allowed for the taxpayer's "qualifying child" under the age of 17. The definition of a "qualifying child" used for purposes of claiming a dependency exemption under IRC Section 151 is the same as that used for purposes of claiming the child tax credit. Consequently, the taxpayer claiming the dependency exemption for the child is the individual entitled to the credit. Prior to 2009, a child qualifying for the child tax credit was not required to be claimed as a dependent. The Fostering Connections to Success and Increasing Adoptions Act of 2008 added this additional condition. This is important to consider in cases involving divorced, separated, or unmarried parents.

Phase-out of the Tax Credit for Children

The credit is phased-out for upper-income taxpayers. The phase-out occurs based on the taxpayer's adjusted gross income (AGI) with certain minor modifications ("modified adjusted gross income"). The phaseout begins at the following levels of modified AGI:

Married filing joint return   $110,000
Married filing separately     $ 55,000
Unmarried taxpayers           $ 75,000

The otherwise allowable credit is phased out by $50 for each $1,000 (or fraction thereof) by which modified AGI exceeds the threshold amount. For example, a married couple filing jointly with one child this year would have no child credit if their modified AGI was more than $129,000. …

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