|
Year 2002
Tax Benefits for Parents of Children with Learning
Disabilities
from Schwab Learning
Original
URL:
http://www.schwablearning.org/articles.asp?r=684&g=2
For more articles visit
www.bridges4kids.org.
If you have a
child with a severe learning disability, you may qualify for
valuable tax benefits. If your child has AD/HD, or other
physical, mental or emotional impairment, you may also qualify
for tax benefits. Because tax laws are complex, and many tax
preparers often do not have occasion to use these unique tax
benefits, families are at risk of losing refunds worth many
thousands of dollars. It’s likely that 15-30 percent of
families with a disabled child have one or more unclaimed tax
benefits.
This guide provides a brief summary of the most significant
tax benefits and should not be considered legal advice. Tax
decisions should not be made simply on the basis of the
information provided here. You are advised to print out this
guide and give a copy to your tax advisor.
Internal Revenue Service (IRS) “Publications” represent the
most accessible form of guidance to the tax rules for the
general public, and relevant IRS publications are cited for
each of the tax benefits listed below. The IRS also issues
interpretations of the code and regulations called “Revenue
Rulings.” These interpretations are formal, binding policy
statements. Tax professionals rely on revenue rulings in
advising clients about tax liabilities and tax benefits. For
example, Revenue Ruling 78-340, discussed later, authorizes a
medical expense deduction for tuition or tutoring fees paid
for a child with a severe learning disability who is attending
a special school at the recommendation of the child’s doctor.
Tip: Relative caretakers, such as grandparents or aunts, and
non-relative caretakers, such as foster parents, also may
qualify for tax benefits. See a related tax guide of the Casey
National Center for Resource Family Support.
Tax Benefits: Deductions vs. Credits
It’s important to distinguish between two different categories
of tax benefits. One category is a “deduction from taxable
income” or simply “a deduction.” The value of a deduction is
based on the marginal tax rate of the taxpayer. If a person
has a tax deduction “worth $1,000,” the actual value of the
deduction will be determined by the taxpayer’s tax rate. So a
taxpayer in the lowest tax rate bracket, 10 percent, will have
taxable income reduced by $1,000, and save $100 (10 percent of
$1,000). However, a taxpayer in a higher bracket, say the 30
percent, will have taxable income reduced by $1,000, and save
$300 (30 percent of 1,000).
The second tax benefit is a tax credit, which is a dollar for
dollar reduction in tax liability. An individual with a tax
credit worth $1,000 will have his tax bill reduced by $1,000.
This means that the actual amount of taxes is reduced by the
amount of the tax credit. However, because tax laws and
procedures are very complicated, other factors can influence
the ultimate value to the taxpayer.
The following summarizes the principal tax benefits that may
be available to families caring for children with severe
learning disabilities.
Retroactive Claims for Refunds
The IRS allows taxpayers to file amended returns, and collect
refunds for unclaimed tax benefits, retroactively up to three
years. This means a taxpayer can file an amended return for
the 1999 tax year and claim a refund if the return is filed
not later than April 15, 2003. (See IRS Publication 17, Tax
Guide 2002, at pp. 18-19.)
Medical Expense Deductions
The IRS has ruled that tuition costs for a special school that
has a program designed to educate children with learning
disabilities and amounts paid for a child’s tutoring by a
teacher specially trained and qualified to deal with severe
learning disabilities may also be deducted. (Revenue Ruling
78-340, 1978-2 C.B. 124.) Special instruction or training or
therapy, such as sign language instruction, speech therapy,
and remedial reading instruction also would be deductible.
Related books and materials can qualify for the medical
expense deduction.
Generally, to qualify for the deduction, the child’s doctor
must recommend the special school, therapy, or tutoring, and
there must be a medical diagnosis of a neurological disorder,
such as severe learning disability, made by a medical
professional. Transportation expenses to the special school or
to the tutor also qualify for a medical expense deduction. If
transportation is by car, the allowable expense in 2002 is
thirteen cents per mile plus parking and tolls, or the actual
cost of operating the vehicle.
Diagnostic evaluations also qualify for a medical expense
deduction. This can include testing by a psychologist,
neurologist, or other person with professional qualifications.
Note: Expenses claimed as a medical expense deduction and
later reimbursed by a school district or insurance company
must be reported as taxable income for the year in which the
reimbursements are received.
Not everyone who has medical expenses can use them on their
tax return. Medical expenses must be claimed on Schedule A,
Itemized Deductions, and are subject to certain limitations.
First, the family must have itemized deductions that exceed
their standard deduction in order to use Schedule A (about 65
percent of taxpayers do not itemize for this reason). Second,
medical expenses are allowed as a deduction only to the extent
that they exceed 7.5 percent of adjusted gross income, a
significant threshold for many families. (See IRS Publication
502, Medical and Dental Expenses.)
Deduction for Disability Related Conferences
In May 2000 the IRS issued Revenue Ruling 2000-24, which
offers guidance — and good news — for parents of children with
disabilities. Parents who attend conferences to obtain medical
information concerning treatment for and care of their child
may deduct some of the costs of attending a medical conference
relating to a dependent’s chronic health condition. The
important points to remember are:
Medical expenses are deductible only to the extent that they
exceed 7.5 percent of an individual’s adjusted gross income,
and that limitation applies to this deduction as well;
Costs for admission and transportation to a medical conference
relating to your dependent’s chronic health condition are now
deductible, if the costs are primarily for and essential to
the care of the dependent.
Costs of meals and lodging related to a conference, however,
are not deductible. (Note, however, lodging, up to $50 per
night, is deductible if you must travel and stay at a hotel
while your dependent is receiving medical treatment from a
licensed physician in a hospital or a related or equivalent
setting.)
Costs are “primarily for and essential to the care of the
dependent” (and therefore deductible) if:
The parent attends the conference upon the recommendation of a
medical provider treating the child;
The conference disseminates medical information concerning the
child’s condition that may be useful in making decisions about
the treatment of or caring for the child;
The primary purpose of the visit is to attend the conference.
While at the conference, the parent’s social and recreational
activities in the city he or she is visiting are secondary to
attendance at the conference;
The conference deals with specific issues related to a medical
condition and does not just relate to general health and
well-being.
The full text of IRS Revenue Ruling 2000-24 is available at
Amicus for Children, Inc. or can be retrieved by using the tax
links search engine.
Child and Dependent Care Credit
The Child and Dependent Care Credit is allowed for work
related expenses incurred for dependents of the taxpayer.
Generally the dependent must be under the age of 13. However,
if the child has a disability and requires supervision, the
age limit is waived. For example, a 16-year-old with severe
AD/HD and a behavior disorder who cannot be left alone would
be a qualifying child for this credit.
Expenses up to $2,400 per year per dependent are allowed.
Expenses for regular childcare services, after-school
programs, and summer camp qualify although overnight summer
camp expenses do not. Payments to a relative to care for a
child also qualify, as long as the relative is not a dependent
of the taxpayer. The credit is calculated at 20-30 percent of
allowable expenses, based on the family’s adjusted gross
income. The average credit is about $420 but can be as high as
$1,440. (See IRS Publication 503, Child and Dependent Care
Expenses.)
Exemption for Dependents
A taxpayer is entitled to claim an exemption for each
qualified dependent. This may appear relatively
straightforward, but caretakers, such as grandparents, aunts,
or even foster parents, may overlook exemptions. Also, in some
cases a non-custodial parent who provides the majority of
support for a child with a severe learning disability, and
also pays for medical/educational expenses related to the
child’s learning disability, may likewise qualify for both the
exemption and medical expense deductions. There is a five-part
test, with the most significant test involving support. That
is, the taxpayer must be the primary source of support — more
than 50 percent — for the person claimed as a dependent. For
each dependent, there is an exemption from taxable income,
worth $3,000 for the 2002 tax year. For a taxpayer with a
marginal tax rate of 30 percent, each exemption will reduce
the tax liability by $900. Equally important, the dependency
status is required for some tax benefits such as the child and
dependent care credit listed above. Also dependents under age
17 qualify for the Child Tax Credit, worth up to $600 per
child. (See IRS Publication 501, Exemptions, Standard
Deduction and Filing Information, and Instructions to Form
1040.)
Earned Income Tax Credit
Families with adjusted gross income under $34,178 ($1,000 less
for taxpayers filing as single or head of household) may
qualify for the Earned Income Tax Credit (EITC) based on the
presence of one or two “qualifying children” in the taxpayer’s
home. For EITC purposes, a “qualifying child” is a biological
child, adopted child, step child, or foster child who resided
with the taxpayer for more than six months during the calendar
year, and is under age 19 at the end of the year. A
“qualifying child” is also a child age 19-23 who is a
full-time student for at least one semester. Finally, a
severely disabled child is a “qualifying child” without regard
to age, even into adulthood, as long as the child continues to
live with his parent(s). Note that a “qualifying child” for
EITC does not have to meet the requirements for a dependency
exemption. EITC benefits are as high as $4,140 for families
with two or more qualifying children, although the average
EITC nationally is about $1,800. (See IRS Publication 596 for
more information.)
Where to Get More Information
The IRS provides free booklets that cover each of the topics
listed above. The titles listed below may be ordered by
calling the IRS toll-free number: (800) 829-3676. Generally,
taxpayers may order up to three copies of any publication or
form. The following booklets may be helpful:
IRS Publication 17: “Your Federal Income Tax” (a comprehensive
250+ page guide)
IRS Publication 502: Medical and Dental Expenses
IRS Publication 503: Child and Dependent Care Expenses
IRS Publication 501: Exemptions, Standard Deduction and Filing
Information
IRS Publication 596: Earned Income Tax Credit
Extensive information can also be obtained from the IRS. The
American Bar Association Section on Taxation contains links to
scores of tax related sites.
Tax Counseling and Tax Preparation Assistance
CPAs represent one source of tax advisors, although not all
CPAs have expertise in this area. Enrolled Agents are
individuals licensed by the IRS to represent taxpayers, and
this group generally has a high degree of expertise.
Typically, charges for a tax return with multiple deductions
and credits will cost $150-300. National organizations provide
tax preparation and tax counseling services. Many operate only
during the tax filing season but a small number in larger
urban areas are open year round. Fees charged by these
companies are slightly lower than the fees typically charged
by CPAs and Enrolled Agents.
Some parents may not be able to afford fees charged by
professional tax preparers, who generally seek payment in
advance. An option for lower income clients is the Volunteer
Income Tax Assistance (VITA) program. However, because of
broad range in skills and expertise of volunteers, caution is
recommended. Some large cities have one or more VITA programs
that offer professional level services. A university
accounting department or the local legal services program may
be able to help you identify a high quality VITA program.
Disputes with the IRS
Disputes with the IRS are relatively rare; less than 1.5
percent of all individual income tax returns are subject to an
IRS audit. If you feel an IRS agent is not responding
properly, contact the Taxpayer Advocate for assistance —
toll-free: (877) 777-4778. The IRS funds more than 100 Low
Income Taxpayer Clinics to represent lower income taxpayers in
disputes with the IRS or state revenue departments. Clinics
assist taxpayers with income under 250 percent of the poverty
level — about $44,000 for a family of four. Some clinics,
especially those attached to law schools, will represent
higher income families. Information on the nearest clinic can
be obtained from the general IRS toll-free inquiry number:
(800) 829-1040. Families above this income level should call
their county or state bar association.
Conclusion
This guide offers a brief summary of some, but not all, of the
potential tax benefits that may be available to you. You
should obtain copies of the IRS publications cited above and
discuss with your tax advisor whether these benefits apply to
you. Again, you should not rely on this guide alone to
determine whether you should claim any of the tax benefits
reviewed here.
|
