By Dr. Bryan Jepson, Guest WriterWhen my son Aaron was diagnosed with autism at age 3, our world changed. Almost overnight, we were involuntarily thrust into an unfamiliar and scary new reality that would permanently alter the direction of our lives. Our focus shifted from playdates and pre-K to ABA, special diets, and IEPs. You know how they say that there is no handbook for parenting? Well, compared to raising a child with special needs, especially in 2001, there are volumes.
Suddenly, it felt like we had to fight tooth and nail for our child’s future, all while just trying to figure out how to manage it ourselves. Fast forward a couple of decades. Our now 26-year-old son is an adult, and we have subsequently adopted a second child with severe autism who is also an adult. We have a third son, our eldest, who is not disabled. We have all somehow survived so far and have learned so much in the process.
Our sons with autism have made great strides and have found their own ways to impact the world around them through writing (both have limited speaking skills), but they are still very much impacted by their disorder and still dependent on us. At this point, it is unlikely that will ever change.
So, as parents, we have new challenges to face. How do we care for our adult sons with disabilities over their lifetimes which are very likely to extend well beyond our own? How do we provide an environment where they can live their best lives? How do we prepare and support our oldest son who will be tasked with their advocacy and support when we die?
Many, many families face these questions and challenges. Bound by similar circumstances, I have always felt a special kinship with other parents with special needs children. They tend to have a forged-in-the-fire perspective on what is important in life. When I decided to transition my late-stage career from medicine to financial planning, I knew that I wanted to focus at least part of my practice on special needs planning because there is such a great need and so many potential pitfalls. There are several good articles on The White Coat Investor blog about some of the things to consider if you find yourself in a similar situation. If not you, there is very likely someone close to you who could benefit from this information.
Please share it with a smile.
And if you are a physician who has patients with special needs, you can make a great impact by also sharing these resources. Always remember that those parents are likely exhausted, and a smiling, helpful, and supportive physician can make a huge difference in their lives.
The topic I want to focus on today is how families with young children with special needs can save money on taxes. I understand firsthand the financial stressors of raising a child with a disability. It flat-out costs a lot of money. Thankfully, many of the services, like ABA, that used to be private pay are now at least partially covered by health insurance. But there are many things that are not covered and that parents are paying for out of pocket. Needing to divert so many of your financial resources to your children at the early stages of your adult working life is even more impactful because that is money that you would otherwise be investing or using to pay off debt. The financial consequences can be long-term. Hopefully, some of these tips might help you save at least something on your tax bill.
Medical Care Deduction
The IRS allows a deduction for everyone who spends more than 7.5% of their Adjusted Gross Income (AGI) on medical expenses. Physicians rarely get to claim these deductions because of our high incomes and because it takes quite a lot of medical expenses to exceed that 7.5% threshold. But for special needs families, it is not unusual to spend far above that for the various things that you are doing to help your child. Thankfully, the IRS allows a fairly broad definition of medical expenses when it comes to disability. Here are a few not-so-obvious things that you can deduct:
Special Schools or Institutions
A special school is defined by the IRS as a facility that provides care or specific therapeutic interventions targeting a developmental or medical condition that goes above and beyond the typical educational offerings to the general education student. It doesn’t have to actually be a separate facility to qualify; it can be integrated within a regular public school. Public schools are required to provide a free and appropriate education for each student, regardless of their disability, and should cover the cost of that—even if they acknowledge that they don’t have the resources at their facility. So, public education should be paid for.
But if you don’t agree with what is considered an appropriate education or if you want to go the private school route, there can be considerable out-of-pocket costs. As long as the facility qualifies as a “special school,” you can deduct the cost of tuition, private tutoring, behavioral support services, lodging, meals, transportation, incidental educational costs, costs of supervision, care, treatment, and training.
Medical Conferences and Seminars
If the content of the conference is specific to the disability and not general health or wellness, you can deduct the cost of transportation and conference fees. (You cannot deduct lodging or food.) A recommendation from a physician is helpful.
Special Diets
If these are prescribed by a physician, you can deduct the cost of the special food if it exceeds the cost of regular food.
Prescribed Vitamin Therapy or Alternative Therapies
These are deductible if prescribed by a physician.
Other Therapies
They're deductible if prescribed or recommended by a physician. These may include equestrian therapy; individualized or group classes like art, dance, music and play therapies; and summer camps.
Medical Travel and Transportation
The cost of travel to receive medical therapy or for appointments is deductible at 21 cents per mile. Lodging costs up to $50 per day per person for the taxpayer and one other person are also deductible. The cost of meals is not deductible.
Capital Expenditures for Medical Care
Improvements or modifications to your house to accommodate the needs of the disabled individual are tax-deductible, including maintenance costs of those modifications minus any amount of resulting increase in the home’s fair market value due to the modifications. This would include ramps, railings, wider doorways, security systems, lower kitchen cabinets, etc. Even a swimming pool or spa could be deducted as long as there is a physician's recommendation that they would benefit from that modification and if it is a reasonable expense for that purpose. (You probably can’t deduct the tiki bar.)
Others
Dental expenses, prescribed drugs, psychology/psychiatric care, part B Medicare premiums, medical supplies, and service animals can be deducted.
More information here:
Use a Flexible Spending Account or Health Savings Account
These plans can be used for many of the things that do not count as one of the medical deductions listed above, such as OTC medication and vitamins (without a physician's prescription.) Plus, they are not subject to the 7.5% AGI floor. If you have an HSA or FSA available through your workplace, use it. There is a yearly contribution limit for FSAs ($3,200 in 2024 and $3,300 in 2025) and HSAs ($4,150 for individuals, $8,300 for couples in 2024 and $4,300 and $8,550, respectively, in 2025).
Impairment-Related Work Expenses (for Adults with Disabilities)
If you are an adult with a disability, you can deduct the cost of anything that is required for you to be successful in the workplace related to your disability. For example, if you need an assistive communication or a technology device or a personal assistant to help you do your job, the cost of all that is deductible. Other deductible items include transportation to work, the cost of disability-related modifications to a vehicle to get you to work, mileage for your commute, prescribed drugs or treatments aimed at controlling your condition at work, durable medical devices (like wheelchairs), expendable medical supplies, prosthetic devices, service animals, and home modifications.
The list is quite broad, and the items do not have to be exclusively for work. But they can’t be simultaneously covered by insurance.
Taxpayer Dependents
Normally, you can claim someone as your dependent if you provide more than half of their financial support, they are related to you, they live with you more than half of the year, and they are under the age of 19 or 24 (if a full-time student). There is no age limit if they have special needs or a disability. And unlike some other dependents, there is no income limit for a disabled dependent for you to claim them.
More information here:
Financial Planning for Special Needs Kids
Tax Credits
There are a few tax credits that apply to individuals with disabilities. Most physicians don’t qualify for tax credits because of income phaseouts, but I’ll include these for completeness and to give to others as a resource.
Special Needs Adoption Expenses
If you adopt an individual with special needs who is deemed by the state as needing adoption assistance (meaning they wouldn’t generally be adopted without some help from the state), you get the full adoption credit of $16,810 [2024] regardless of how much you spend on the adoption. This is applied in the year when the adoption is completed and is non-refundable.
Child Tax Credit
This is a partially refundable credit of $2,000 per child under the age of 17. If you have a special needs dependent who is 17 or older, they do not qualify for this credit but qualify for Other Dependent Credit of $500 per year.
Child and Dependent Care Credit
This is a credit given to help cover the cost of childcare so that the parents can work. It is currently up to $4,000 for one qualifying person and $8,000 for two or more. The amount is based on a percentage of expenses and there are income phaseouts (fully phased out at $483,000 per year AGI). Normally, a qualifying individual must be under age 13, but this age limit is waived if the child or dependent has special needs.
Retirement Account Penalty
Although I would use this as a last resort, you may withdraw money from an IRA (and a workplace retirement account if the plan allows it) to pay for eligible medical expenses without incurring the additional 10% penalty if the total amount of the withdrawal is under your 7.5% AGI limit. Anything over that will incur the penalty on that portion. It must be for medical expenses used in the year of withdrawal, but it does not require you to itemize your deductions. Income taxes still apply.
More information here:
Disabled Children Are Not a Reason to Buy Whole Life Insurance
The Bottom Line
Raising and supporting a family member with special needs comes with many challenges beyond finances. But sometimes, the costs are overwhelming, and they can greatly impact the future security of the entire family. Special needs planning is nuanced, and it includes many things that I did not talk about here but are referenced in other WCI articles. If you are a family in this situation, hopefully some of these tips will help you. If you are a physician who works with these families or individuals, a written letter documenting the diagnosis, date of onset, anticipated duration of the disability, and specific recommendations for their care can make a huge difference—and it will allow them to deduct those items as medical expenses.
Please consider being broad in your recommendations to include some of what's listed above that may help them outside of your standard medication prescription.
And remember to smile. It might just help them get through another day.
Are there other tax deductions or tax credits that you know about for those raising special needs children? If you're the parent of a special needs child, how much have these credits and deductions helped you?
“Always remember that those parents are likely exhausted, and a smiling, helpful, and supportive physician can make a huge difference in their lives.”
Thanks for this informative and thoughtful post.
Thanks for the article and your dedication. What are your thoughts about the utility of ABLE accounts?
I think they’re great and should be part of the mix.
https://www.whitecoatinvestor.com/able-a-tax-protected-investing-account-for-your-special-child/
We also talk quite a bit about ABLE accounts in our recent podcast: https://www.whitecoatinvestor.com/financial-planning-for-special-needs-kids-with-dr-bryan-jepson-396/
Can you consider a child with ADHD as having a disability and deduct any items?
What deduction are you talking about exactly? The medical deduction can be used for any medical condition whether disabling or not.
Any of the deductions mentioned above. For example tutoring, special camps or activities for kids with ADHD
Thanks
M,
ADHD should still qualify as a learning disability or mental health disorder but in case of an audit, it would really help to have clear documentation by a physician about how your child’s condition is impairing and how the treatments, or special school, or special summer camp is medically necessary or beneficial to your child’s medical condition. In other words, you probably can’t just send him or her to regular summer camp and write it off because they have ADHD.
How about tutoring and classes on mindfulness? Would those also be deductible?
M,
I can tell you the general principles. For specifics to your situation, I would suggest that you speak with an accountant with experience in the area. The principle is that you can write off anything that would be considered therapeutic for a medical condition and recommended by your physician (with a letter outlining their condition and how the given thing that you are writing off would be expected to help it). The therapeutic intervention must be specific to the condition and should be above and beyond what you would expect a child without that disability to need. I don’t know how often the IRS audits these medical write offs. My assumption is that the more you write off, the higher the likelihood of an audit. If you are audited, you want to have clear documentation about the therapeutic value of what you are writing off and a doctor’s recommendation. If you have that, I would assume that you would be okay but again, I think finding an accountant with special needs experience would be useful, since they may have to help you defend it. I’m not sure how to help you find such an accountant. I would start with asking other parents in your area or even other accountants. I hope that helps.
Thanks!