The weary gray cold days of winter are upon is! To make things worse, with winter comes the necessary chore of preparing your taxes! Whether you are filing yourself or work with a tax professional, below are some tax issues special needs families need to consider in preparing their returns.
Claiming as a Dependent
Families can claim an individual with disabilities as a dependent when:
- They have lived with you for more than half of the tax year
- You have provided at least half of their support for the tax year
- They are either your: child, stepchild, foster child, or a descendant of these
Deduction for Unreimbursed Medical Expenses over 7.5% of Adjusted Gross Income (AGI)
This deduction only applies if you are filing a 1040 form and if your total deductions exceed the standard deduction amount ($12K for individual, $24K per family.) Generally, the expenses for the child you are claiming the deduction for should be a dependent or could have claimed as a dependent see (
) for further clarification. The threshold of 7.5% can be illustrated by a simple example. Let’s say your AGI is $60,000. 7.5% of this amount is $4,500. Therefore only eligible expenses above $4,500 can be considered as a medical deduction. Note that the threshold returns to 10% of AGI in 2019.
The list below is not certainly not comprehensive but does provide a general idea as to what kinds of medical expenses special needs families might deduct related to the care of their child with a disability including:
- Special schooling, training, or therapy
- Educational aides
- Diagnostic evaluations
- Home improvements and/or modifications
- Special medically recommended diets
- Medically required foods
- Therapy supplies
- Travel and expenses (but not meals or lodging) to attend conferences about your child’s diagnosis including mileage to and from doctor appointments and therapy
- Changes to the structure of your home
- In-home caregivers, if the doctor requires it for the child
- Special education tuition if the education is intended to overcome learning disabilities
ABLE (STABLE) Contributions
For Ohio residents or taxpayer up to $4,000 per STABLE account is considered a deduction for state income tax purposes with “unlimited carry forward.” This means if you contribute more than $4,000 in a given year you can take the remainder of the contribution as a deduction in a subsequent tax year.
The Saver’s Credit is a little used tax credit for low income individuals who make contributions to their retirement accounts. Because of the tax reform bill passed last year, individuals with disabilities who file an individual tax return and who set aside money in their ABLE accounts will be eligible for the same tax credit, up to a maximum credit of $2,000. The credit can only be applied to federal taxes owed in the current tax year.
Health Savings Accounts (HSA) Contributions
For those families who have health insurance in a high deductible plan, a health savings account is a tax advantaged savings account by which families or individuals can pay for qualified medical expenses tax free. Contributions, earnings on contributions and withdrawals for qualified medical expenses are all tax free! If you have a Health Savings Account, you are able to contribute for the 2018 tax year $6,900 per family ($7,900 if 55 or older.) The deadline for making this contribution for 2018 is April 15- no extensions! The limits go up to $7,000 in 2019 ($8,000 if 55 or older.) This is a powerful savings tool for all tax filers.
Child Care & Dependent Credit.
The dependent care credit enables lower income families or individuals to subtract up to 35 percent of the cost care related to the individual with a disability while they work or look for work. You must have earned income for the year to claim the credit. In order to quality eligible adult dependents can not engage in any substantial gainful activity because of a physical or mental condition. The credit is limited to $3,000 per qualifying dependent. For families with a child with a disability, this credit applies regardless of the age of your child. For more information on this credit please refer to
Dependent Care Tax Credit
Earned Income Tax Credit (EITC)
For lower income families or individuals, the EITC is a federal income tax credit for workers who don't earn a high income. Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund. According to the IRS, many individuals with disabilities miss out on the credit because the don’t file a tax return. Special needs families with a child with a disability living at home may be able to count their adult child as a qualifying child as long as the adult child is not earning income from “substantial and gainful employment.” Families or individuals must have at least $1 dollar of earned income to receive the credit. Pension and Social Security income do not count as earned income. Tax refunds will not impact eligibility for Social Security disability or Medicaid. For more information please refer
Earned Income Credit
, for more information about the credit.