I was surprised to read an article that stated that 15-30% of families with a disabled child in the United States probably have one or more unclaimed tax benefit. So, if you fall in that group, it’s time to learn what you need to know to start claiming the benefits your family qualifies for.

Medical Expenses are the big one. Included in those medical expenses is the cost of any special school that has a program specifically designed for your child’s disabilities and amounts paid for tutoring or therapy, such as speech therapy or remedial reading instruction. Related books and materials also qualify. These programs must be recommended by the child’s doctor and there must be a medical diagnosis of a neurological disorder. Transportation to the school or therapy also qualify, with the allowable expense in 2006 of $0.18 per mile.

Diagnostic evaluations also qualify for the deduction.

It is important to note that if you are reimbursed by an insurance company or school district for any of these services that money has to reported as taxable income.

The catch to medical deductions is that they have to be filed by itemizing deductions (Schedule A) – which means the itemized deductions have to exceed the standard deductions – and for many Americans this is not the case. Then, medical expenses are allowed as a deduction only to the extent that they exceed 7.5% of the family’s adjusted gross income. This disqualifies many families. (We, however, aren’t one of them. For the 4th year in a row now, our family’s medical expenses will far exceed 7.5% of our income. In 2005 it was around 16%...wonder what it will be this year…)

Flexible Spending Accounts. An alternative way to save taxes on medical expenses is to establish a flexible spending account for medical expenses not covered by insurance or the school district. Through these accounts the expenses are paid with pre-tax dollars. These programs are part of “cafeteria plans” offered by many employers. You allocate pre-tax income to go into the account and withdraw it during the year for medical expenses. In some cases, the employers make contributions to the fund as well. It is important to note that you must decide at the beginning of the year how much to allocate into this Flexible Spending Account and that the amount in the account must be used by the end of the year.

There is another program called Health Savings Accounts that differs from the Flexible Spending plans. This plan allows you to use up to $5450 in pretax income for medical expenses. The account could be opened only if an employee has a high deductible health care insurance plan. The amounts in this account can be carried over from year to year.

Disability-Related Conferences. This one was news to me. Parents of disabled children can deduct the cost of attending conferences to obtain medical information concerning the treatment and care of their children with disabilities. These expenses fall into the medical deduction category, so need to be part of the overall expense that exceeds 7.5% of your gross income. But the cost of the conference plus transportation are deductible. Food and lodging are not. Check with your tax advisor for details on determining of the conferences you are planning qualify as a medical deduction.

Child and Dependent Care Credit. This allows for child care expenses related to work to be calculated as a credit. While generally the dependent must be 13 years old or younger, if the child has a disability that requires supervision, the age limit is waived. The expenses can include after-school programs and summer day camps.

Check out this article at Schwab Learning to learn more.


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