Tax Tips for Families with Special Needs

 March 28, 2013
Posted by M&LAdmin4

Thursday, March 28th, 2013

It is no secret that many families with special needs bear large financial burdens. The cost of therapy, medicines, medical devices, and specialized medical equipment can place a strain on a family’s financial situation, which can in turn lead to stress and anxiety. A fail-safe way to reduce this financial strain is to ensure that you are taking advantage of all of the available tax deductions and credits available to families with special needs. As the deadline for filing personal tax returns in the United States is less than three weeks away – April 15th, 2013 – the staff at M&L Special Needs Planning decided to put together a list of tax tips for families with special needs in the hope that we can help you ease this year’s tax burden.

Note: The staff of M&L Special Needs Planning are not tax professionals. This blog is intended for information purposes only.

Deducting Medical Expenses

The high costs associated with medical appointments, therapies, medicines, and specialized medical equipment may come in handy for this year’s tax return. For 2012, a taxpayer can claim medical expenses as a deduction if the total of the expenses exceed 7.5% of the taxpayer’s AGI (Adjusted Gross Income). The term “medical expenses” is used to define a wide variety of different costs incurred as a result of a medical condition. Under Tax Topic 502 on the IRS website, medical expenses are described as including “payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.” These expenses include things such as fees to medical professionals, prescribed medications,  fees for in house treatments at qualifying facilities (for example, nursing home fees), hospital fees, eye glasses, dental expenses, etc. In some cases, transportation and expenses related to essential medical appointments or conferences relevant to the medical condition are also deductible. For a full listing of the expenses which qualify, please click here.

In certain cases, costs incurred though securing special education for children with special needs may also qualify as a medical expense. The IRS states “you can include in medical expenses fees you pay on a doctor’s recommendation for a child’s tutoring by a teacher who is specially trained and qualified to work with children who have learning disabilities caused by mental or physical impairments, including nervous system disorders.” This regulation also states that tuition, meals, and lodging expenses associated with attending a special education school can be included under medical expenses. The key phrase to recognize from this regulation is that a doctor must recommend that the child attend this school. Also, as the IRS states, “overcoming the learning disabilities must be a principle reason for attending the school, and any ordinary education received must be incidental to the special education provided.” In other words, to use an example also provided by the IRS, if your child attends a school to learn braille, or lip reading, as well as the other school subjects, then the expenses associated with the school qualify. If your child has dyslexia, and attends a school with a smaller student-to-teacher ratio simply for the overall improvement in the quality of education, then the costs associated with attending that school do not qualify. If you have any questions regarding whether or not the school your child is attending qualifies, then contact that school directly. To see this regulation on the IRS website, please click here.

Another deduction that may be of particular interest to parents of children with special needs is related to food. According to the IRS, the cost of specialized food recommended by a doctor (i.e. a gluten free diet) may be used as a deduction – it has to be medically relevant, and only the cost of the specialized food over and above the cost of similar items is deductible. For example, if the cost of gluten free muffins is $10, and the cost of other muffins is $5.00, then only $5.00 can be used as a deduction.  You can see this rule here. Although the information falls under the heading of weight loss, the regulation states that certain foods can qualify as a medical expense if they alleviate or treat an illness, or the need for the food is substantiated by a physician.


Finding an eligible tax deduction is always great, but finding a tax credit you are eligible for is undeniably better. While deductions reduce the amount of income that is subject to tax, a credit will reduce the amount of income tax you may have to pay. For this reason, we draw your attention to two tax credits which may be of particular important to families with special needs: the Dependent Child Care Credit, and the Earned Income Credit.

The Child and Dependent Care Credit is intended to offset the costs of childcare for those working, or looking for work. This credit may be applied when you pay fees associated with child care for your dependents. These fees can include day care, day camp, afterschool care, etc. Qualifying tax payers can receive up to $3000 per dependent, but the credit limit is $6000 for all dependents. The dependent must be either under the age of 13, or be a spouse or dependent that is unable to care for him or herself. Children with special needs are not subject to the age limit. For more information on the Child and Dependent Care Credit, please visit the IRS website.

The Earned Income Tax Credit is a benefit for those who work and have a low to moderate income. This credit can also be claimed on your tax return if you have a qualifying child. Qualifying children must be under the age of 19, or under the age of 24 if attending an educational institution full-time, or be permanently disabled (there is no age limit if the child has a disability). For more information on the Earned Income Tax Credit, please visit the IRS’ Earned Income Tax Credit information page. Also available on the IRS website is a tool which will help you determine if you qualify, and if so the amount of the credit that you will receive. Please click here to use this tool.

If you already have your return for 2012 filed, (lucky you), please keep in mind these important changes for 2013 tax returns:

  • A 0.9% tax hike for high wage earners ( more than $200,000/year single, or $250,000 for a couple)
  • New 2.3% Medical Device Tax
  • Medical expenses need to add up to 10% if Americans want to claim a deduction; that amount has risen from  7.5% in 2012
  • Flexible Spending Account (FSA) change – previously uncapped, as of 2013 the FSA contributions are now limited to $2500 per year.

For more information about these changes, please refer to a blog we published titled Obamacare Update: Changes to Expect in 2013.

Thanks to all of you who took the time to read this blog today. We hope that you found it informative and helpful. If you have any questions, comments, or suggestions regarding this blog, or any other topic related to special needs financial planning, don’t hesitate to send us an email, leave a comment, or give us a call! From all of us to all of you, happy tax time!





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