Special Needs Planning: Medical Expense Deductions

By Jessica Searcy Kmetty

Medical coverage is a big deal in the special needs community. Many of my friends and neighbors spend excessive amounts of money on special needs private schools, therapies, and professional evaluations. However, I’ve come across a number of families who are unaware of, or know little about, medical tax deductions.

Perhaps it’s because they don’t have a very proactive accountant, or maybe it’s because they think they don’t qualify because their income is too high. In some cases, they are intimidated by IRS tax laws and fear that including their medical expense will somehow create a “red flag” and subject them to an IRS audit.

So, let me endeavor to set the record straight.

If you are a parent of a child with special needs, there is a pretty good likelihood that you qualify for at least some medical expense deductions.

In late 2020, law makers permanently extended Sec. 213(f) provisions regarding the medical expenses exemption reducing the floor to 7.5% (instead of 10%) of AGI. Look at your adjusted gross income (AGI) and multiply that number by 7.5%. If your expenses are greater than that, then you exceed the deduction amount and you would qualify for a medical expense deduction. You can only claim the amount of medical expenses that exceed 7.5% of your AGI. So, if your AGI is $100,000 then every dollar over $7,500 in expenses is deductible.

What qualifies as a medical expense? More than you may realize:

  • Therapy sessions that provide treatment for your child’s disorder are tax deductible. Exercise programs that treat specific developmental delays are also tax deductible. In order to qualify this as a deduction, a doctor or therapist must recommend the program and a licensed therapist must teach the program. Only sessions paid out of pocket are tax deductible.
  • Mileage to/from special needs schools, therapy sessions, diagnostic testing. Tolls, public transportation, airfare for parents/children who obtain treatment.
  • Medical conferences and seminars, therapeutic assistance, prescribed vitamin therapy and special diets to treat medical conditions are also tax deductible (think gluten free specialty foods) provided that the diet is part of a physician’s diagnosis and treatment recommendations.
  • Medical equipment. Again, a therapist or physician must approve the purchase and use of the equipment for it to qualify.
  • Meals purchased at hospitals while your child is receiving care. Meals while traveling for care are not deductible.
  • Legal fees paid to authorize treatment for your child. Most other estate planning-related documents for your child or child’s care are not deductible.
  • Private school tuition for a school that provides specific treatment for your child’s disorder(s). Most special schools provide invoices with your child’s diagnostic and treatment codes and certify that they are specialized in helping children with learning disabilities (or whatever their specialized program may be). You can include in medical expenses the cost (tuition, meals, and lodging) of attending such a school.
  • Payments made from an HSA or FSA account are not tax deductible since you already took the tax deduction from your paycheck by reducing your income when you funded them.

Keeping track of expenses can be daunting but there are numerous methods to make life easier. Some people setup an electronic folder and file each receipt as they occur. Others use apps for mileage logs or keep a simple spreadsheet of all expenses. Whatever your method, be consistent so it is easier to pull things together for tax filing.

The IRS publishes a list of medical and dental expenses that qualify for itemized deductions here: https://www.irs.gov/taxtopics/tc502

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The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.  

Published for the blog on March 2, 2021 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.