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Tuition for learning disabilities may be deductible

The IRS has ruled tuition paid to a special school for a child diagnosed with multiple learning disabilities is a deductible medical expense. Deductible medical care includes the cost of special schooling to help with a physical handicap, including a school for Braille or lip reading.

If the handicap is the principal reason for attending, the cost of tuition for ordinary education and room and board at the school also qualifies as a medical expense. A special school is one in which the substantive content of its curriculum is enabling students to compensate for or overcome a handicap.

For example, Jane has a child diagnosed with a developmental disorder. At her doctor’s recommendation, she enrolls her child in a school that employs special-education teachers and mental health specialists.

 

Tax Breaks to Help Disabled

by William C. Metzger, BKD, LLP

Disabled individuals are entitled to certain tax breaks via income exclusions, deductions and credits. The following information for fully or partially disabled individuals is a summary of highlights.

Income exclusions

• Legal settlements and court awards for personal injury or sickness are generally not taxable.
• Disability insurance benefits received in the form of Social Security or Tier 1 Railroad Retirement payments are tax free for lower-income individuals. Taxation of these benefits normally starts when modified adjusted gross income (AGI) exceeds $32,000 for married couples who file a joint return and $25,000 for single individuals.
• Supplemental Security Income (SSI) benefits generally are not taxable.
• Disability benefits received from the Department of Veterans Affairs (VA) are not taxable.
• Other disability insurance payments for personal injury or sickness are generally taxable if the insurance premiums were paid by your employer (unless the premiums were treated as taxable compensation).
• Payments for the cash-surrender value of a life insurance policy received before death (accelerated death benefits) are generally taxable if they exceed the premiums paid. However, accelerated death benefits are generally not taxable if the insured individual is terminally or chronically ill.
• Proceeds from the sale of a life insurance policy on a terminally or chronically ill taxpayer to a qualified viatical settlement provider are generally tax free.
• Qualifying military and government disability pensions are not taxable if received from a pension, annuity or other allowance for personal injury or sickness resulting from active service.
• Workers’ compensation payments are generally not taxable.
• Welfare, and public-assistance payments for a disability are generally tax free.
• Generally, qualified long-term care insurance benefits are not taxable.

Deductions

Partially or totally blind taxpayers get an additional standard deduction. For 2007, the amount is $1,300 for single and $1,050 for married couples.

Among others, the following may be deducted as itemized medical expenses:

• Prosthetics, eyeglasses and hearing aids
• Additional cost of Braille books and magazines over the price of regular printed editions
• Special communications devices for hearing- and vision-impaired persons
• Wheelchairs
• Guide dogs
• Therapy
• Certain home improvements, such as ramps

Tax credits

The child- and dependent-care tax credit may be available for taxpayers who incur employment-related expenses to care for a child under age 13 or a spouse or other dependent who is physically or mentally unable to care for him/herself.

Disabled individuals with earned income may also qualify for the Earned Income Credit.

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William C. Metzger is a tax partner in the Indianapolis office of BKD, LLP, one of the 10 largest CPA and advisory firms in the United States. Contact the author at bmetzger@bkd.com.

About BKD
BKD, LLP (www.bkd.com) is the CPA and advisory firm of choice for growing companies and high networth individuals. As one of the 10 largest such firms in the country, we help clients go beyond their numbers by applying our technical expertise, unmatched client service and disciplined delivery of solutions to their management and financial needs. BKD’s more than 1,600 personnel, including approximately 220 partners, are based in 27 offices within 11 states in the central United States. Praxity, AISBL, a global alliance of independent firms, enhances BKD’s ability to serve the dynamic needs of multinational clients. PraxityTM is your gateway to tax, assurance and consulting services delivered by alliance firms committed to the highest standards required in international business.