Maximizing Tax Deductions for Medical Expenses of Disabled Children

For families who have disabled children or children with special needs, tax laws provide opportunities to save substantial amounts of money at tax time. Here is a rundown of tax-deductible expenses that parents may benefit from in addition to normal medical expenses.

Special Schooling

For a child diagnosed with learning disabilities, tuition paid to attend a school designed to assist students in overcoming their disabilities and developing appropriate social and educational skills is a deductible medical expense.

Treating a child's learning disabilities can place a heavy financial burden on parents and the tax law may help by allowing a deduction for the cost of educating such a child.

However, like other deductible medical expenses, this cost is deductible only to the extent that medical expenses for the year cumulatively exceed 7.5% of the taxpayer's adjusted gross income.

Medical care includes the cost of attending a special school designed to compensate for or overcome a physical handicap, to qualify the individual for future normal education or normal living. This includes a school for the teaching of Braille or lip reading. The principal reason for attending must be the special resources for alleviating the handicap. The cost of tuition for ordinary education that is incidental to the special services provided at the school, and the cost of meals and lodging supplied by the school, also are included as a medical expense. The distinguishing characteristic of a special school is the substantive content of its curriculum, which may include some ordinary education, but only if the ordinary education is incidental to the school's primary purpose of enabling students to compensate for or overcome a handicap.

School

If a school uses special teaching techniques to assist its students in overcoming their condition, and those techniques along with the care of other staff professionals are the principal reasons for the child’s enrollment at the school, then the school is a “special school”. Thus the child’s tuition at the school in those years the child is diagnosed as having a medical condition that handicaps his ability to learn is deductible.

If a school attended by a student with a medical problem doesn't qualify as a special school because the ordinary education isn't incidental to the special services provided, the costs of the special program or special treatment (but not the entire tuition) may still be a deductible medical expense.

Non-Hospital Institutions

The following are examples taken from Tax Court cases or IRS rulings of when expenses for nonhospital institutions are deductible:

• All amounts paid by the taxpayer to maintain his mentally disabled son in a specially selected private home (which qualified as an “institution”) per the recommendation of the psychiatrist in charge of the son's case, to help the son adjust to life in the community after living in a mental hospital.
• Hotel meals and lodging, where the taxpayer stayed in and received nursing service in the hotel, after getting appendicitis, having surgery in a hospital, and being discharged from the hospital because they needed his hospital room. All these events took place in New York, while the taxpayer lived in Milwaukee. At the time of his discharge, the attending physician said the taxpayer was too weak to travel home.
• Amounts paid to maintain a child at a halfway house, including room and board. Admission to the halfway house required the recommendation of a psychiatrist and continued psychiatric supervision during the stay. The house staff included a psychiatrist and a mental health counselor.

Medical Conferences

IRS has ruled that a taxpayer may deduct the cost of attending a conference relating to a dependent’s disease or disablement. In this ruling, the taxpayer was allowed to deduct the cost of the conference registration fee and travel to the conference, because those costs were primarily for a dependent's medical care and the taxpayer's attendance was essential for that care. The costs of meals and lodging were not deductible, because the dependent did not receive medical care at a licensed facility (a prerequisite for medical deduction of meals and lodging).

Auto Travel

When using a vehicle for medical reasons, the deduction is allowed at a specified rate (cents) per mile (21 cents per mile for 2024 down from 22 cents per mile in 2023) or for the actual cost of gas and oil (not repairs, maintenance, depreciation, lease fees, etc.).

Trips

Amounts paid for transportation to another city may be included in medical expenses, if the trip is primarily for, and essential to, receiving medical services. Up to $50 per night for lodging may be included. A trip or vacation taken merely for a change in environment, improvement of morale, or general improvement of health cannot be included in medical expenses, even if the trip is made on the advice of a doctor.

Meals

Medical expenses may include 100% of the cost of meals at a hospital or similar institution if the main purpose for being there is to get medical care. The cost of meals that are not part of inpatient care may not be included.

Lodging

The cost of meals and lodging at a hospital or similar institution may be included if the main reason for being there is to receive medical care.   Medical expenses may also include the cost of lodging not provided in a hospital or similar institution. The cost of such lodging while away from home may be included if all the following requirements are met:

1)  The lodging is primarily for and essential to medical care.

2)  The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital.

3)  The lodging is not lavish or extravagant under the circumstances.

4)  There is no significant element of personal pleasure, recreation, or vacation in the travel away from home.

The amount included in medical expenses for lodging cannot be more than $50 for each night for each person. Lodging is included for a person for whom transportation expenses are a medical expense because that person is traveling with the person receiving the medical care. For example, if a parent is traveling with a sick child, up to $100 per night is included as a medical expense for lodging. Meals are not deductible.

Vehicles & Vehicle Modification

Medical expenses include the cost of special hand controls and other special equipment installed in a car for the use of a person with a disability. Medical expenses also include the difference between the cost of a regular car and a car specially designed to hold a wheelchair.

Drug Addiction

Amounts paid by a taxpayer to maintain a dependent in a therapeutic center for drug addicts, including the cost of the dependent's meals and lodging, are deductible medical expenses.

Home Modifications

Amounts paid for special equipment installed in the home, or for improvements may be included in medical expenses if their main purpose is medical care for the taxpayer, the spouse, or a dependent. The cost of permanent improvements that increase the value of the property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of the property. The difference is a medical expense. If the value of the property is not increased by the improvement, the entire cost is included as a medical expense. In this situation, it is recommended that a qualified professional be engaged to make the appraisal.

While the tax rules don’t require a prescription from a doctor for most medically related home modifications, the taxpayer, if questioned by the IRS, needs to be able to demonstrate how the expenditure is related to the medical care of the dependent. Having a letter from the individual’s doctor that explains the type of modifications that would be medically beneficial would help to prove a medical need.

Only reasonable costs to accommodate a home for a disabled condition are considered medical care. Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses.

Childcare Credit

A tax credit is available to some taxpayers for the expenses they incur for the care of a child or other dependent while the taxpayer is gainfully employed (or is job-seeking). The expenses allowable in computing the credit are limited to earned income. For taxpayers who file joint returns, the expense is limited to the earned income of the lower-paid spouse. The credit is a percentage (ranging from 20% to 35%) of the childcare expenses (limited to $3,000 per year for one child and $6,000 for two or more) based on the parent’s income. The larger the income the smaller the credit.

Nursing Services

Wages and other amounts paid for nursing services can be included in medical expenses. Services need not be performed by a nurse if the services are of a kind generally performed by a nurse. This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. These services can be provided in the home or another care facility. In-home care providers are generally treated as employees, with appropriate payroll tax filings and payments needing to be made by the hiring taxpayer. Alternatively, care providers may be hired through an agency that handles all the paperwork.

If you have questions related to these or other medical deductions, schedule a consultation with a Fiducial advisor at https://fiducial.com/consultations.

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