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By Michael O'Connor , Juan Pelayo
A taxpayer may claim a deduction for medical expenses of the taxpayer or the taxpayer's dependents (see box for more information on dependents). Section 1.213-1(e)(1)(v)(a) of the Department of the Treasury regulations provides, in part, that while ordinary education is not medical care, the cost of medical care includes the cost of attending a special school for a mentally or physically handicapped individual, if his condition is such that the resources of the institution for alleviating such mental or physical handicap are a principal reason for his presence there. As such, the IRS has ruled that tuition and transportation costs for a special school that has a program designed to educate children with learning disabilities and amounts paid for a child's tutoring by a teacher specially trained and qualified to deal with severe learning disabilities may also be deducted. (Revenue Ruling 78-340, 1978-2 C.B. 124.) Special instruction, training or therapy, such as Braille, lipreading, sign language instruction, speech therapy and remedial reading instruction, would also be deductible. Related books and materials can qualify for the medical expense deduction. IRS Private Letter Ruling 8616069 (1985 PLR L 41) discusses what types of conditions and instruction may not qualify.
Generally, for families to qualify for the deduction, the child's doctor must recommend the special school, therapy or tutoring, and there must be a medical diagnosis of a neurological disorder, such as a severe learning disability, made by a medical professional. Examples of special schools include the following:
The following are examples of institutions that were not special schools:
Transportation expenses for the special school or the tutor also qualify for a medical expense deduction. If transportation is by car, the allowable expense for tax year 2009 is 24 cents per mile or the actual cost of operating the vehicle.
Furthermore, deductible medical expenses include expenses for the diagnosis and treatment of physical disorders, and travel and lodging costs related to such diagnosis and treatment expenses. This can include testing by a speech-language pathologist, psychologist, neurologist or other person with professional qualifications.
Note: Expenses claimed as a medical expense deduction and later reimbursed by an insurance company or school district (e.g., the service is adopted as part of the child's Individualized Education Program, or IEP) must be reported as taxable income for the year in which the reimbursements are received. If parents have paid for the services but haven't claimed them as a medical expense, they should ask that the school district not issue a 1099 form in connection with the reimbursement. If the school district does issue a 1099, consult with a tax advisor about how to proceed.
Not everyone who has medical expenses can use them on their tax return. Medical expenses must be claimed on Schedule A, Itemized Deductions, and are subject to certain limitations. First, the family must have itemized deductions that exceed their standard deduction in order to use Schedule A (about 65% of taxpayers do not itemize for this reason). Second, medical expenses are allowed as a deduction only to the extent that they exceed 7.5% of adjusted gross income, a significant threshold for many families (See IRS Publication 502, "Medical and Dental Expenses," page 3).
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