5 Tax Tips for Parents of Children
with Complex Medical Issues
Disclaimer: Please discuss your individual situation with an accountant or other tax preparation specialist.
Tax time is coming! There are several important ways parents of children with complex medical issues may be able to reduce their tax payments. Read on for five possible options.
1. Deduct Medical Expenses from Your Taxes
You may be able to deduct your medical expenses from your taxes. Unfortunately, your medical expenses must reach 10% of your income to qualify. If you do qualify, any amount you spent on medical expenses can be deducted from your income.
The category of qualifying medical expenses is extremely broad. An overview can be found in IRS publication 502. Some of the ones more relevant to children with complex medical needs include the following:
- All insurance copays and coinsurance for medical, dental, or pharmacy services.
- Incontinence products, including diapers, for a child with a diagnosis of incontinence beyond the standard age of training (usually age 3 or 4).
- Home care, including personal care and nursing-type services that you personally pay another individual to perform.
- Mileage or transportation costs to physician and therapy appointments. You may deduct either a standard mileage amount, or exact transportation expenses (gas, tolls, parking), but not both.
- Medications, including over-the-counter medications, as long as a physician prescribed them.
- Home modifications specifically to provide access for a person with a disability that do not increase the value of the home, such as a ramp, lift, or widened doorway; a portion of modifications that do increase home value may also be deducted.
- Special diets and formulas, including enteral formula, specialized oral formula, and a percentage of costs related to a blenderized diet or a special allergy diet.
- Supplements and vitamins, only if prescribed by a physician for a diagnosed medical condition.
- Insurance premiums that you pay, with some limitations.
- Medical equipment, durable or disposable, including therapeutic devices such as switches, augmented communications devices, special needs swings, sensory devices, wheelchairs, special seating, gait trainers, and so forth.
- Special education expenses, if a doctor has recommended the special education.
- Medical travel expenses, including airfare, train fare, and a limited lodging amount for the person receiving the medical care and one caregiver.
2. Create a Tax-Free Medical Account
There are two additional methods of receiving medical expenses tax-free, through a flexible spending account or a health savings account.
A medical flexible spending account (FSA) is usually part of an employer benefit package. Employees may elect to contribute up to $2500 for tax year 2014 that can be spent on any qualifying medical expense during the year tax-free. Most employers require that you use up the entire amount or forfeit the remainder, though some may allow you to carry forward a small percentage of the account. This type of account has many advantages, including liberal policies for what qualifies as a medical expense, and no requirement that medical expenses must reach a certain percentage of your income.
A health savings account (HSA) works in a similar manner, but you can often contribute a higher amount, and the funds in the account roll over from year to year. HSAs are only available to individuals who hold high-deductible insurance plans.
Qualifying medical expenses are quite broad, and are the same as discussed above in the section on which medical expenses can be deducted from your income for tax purposes.
3. Claim Your Child or Adult Child as a Dependent
While it is common to claim your child under the age of 18 as a dependent, you can claim an adult child of any age as a dependent if he or she is permanently and totally disabled. The adult child must live with you for at least half of the year, not be claimed by anyone else, and provide less than half of his or her own financial support.
4. Receive Personal Assistance Care Tax-Free
If you or someone else in your home is paid by a home and community based Medicaid waiver to provide personal assistance services, these payments may be tax free. Typically, this income is only tax-free when a parent or other individual lives full-time in the home of a person with a disability, and is paid through a state Medicaid waiver program or equivalent to provide in-home care. In states such as California, this usually includes in-home support services payments for children that have been paid to parents or other relatives living in the child’s home. In most other states, this income is only tax-free for care provided to adults over the age 18 and paid by Medicaid waiver programs to a parent or other caregiver living in the adult with a disability’s home. See this IRS Notice for more information.
5. Get a Tax Credit for Care of Your Child or Adult Child
If your child or adult child required care so that you could work, you may be eligible for a dependent care tax credit. This credit is usually only available for children under age 13, but dependents of any age who are mentally or physically disabled and live with you also qualify. You must have paid a caregiver who is not a parent (or other dependent), and that individual’s name must be included on your tax form. See Publication 503 for more information.