[IEP_guide] 2006 Tax benefits for children with disabilities

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passing this on from IEP_guide:

KathyR

>

> If you have a child with a severe disability - a learning disability

> (SLD), autism spectrum disorder (ASD), AD/HD, or other physical,

> mental or emotional impairment - you may qualify for valuable tax

> benefits. Because tax laws are complex, and many tax preparers often

> do not have occasion to use these unique tax benefits, families are

> at risk of losing refunds worth many thousands of dollars.

>

> It's likely that 15-30 percent of families with a disabled child have

> one or more unclaimed tax benefits.

>

> This guide provides a brief summary of the most significant federal

> income tax benefits and should not be considered legal advice. Tax

> decisions should not be made simply on the basis of the information

> provided here. You are advised to print out this guide and provide

> your tax adviser with a copy. You should also explore potential state

> income tax benefits, which are too numerous for review in this guide.

>

> Internal Revenue Service Publications and Revenue Rulings

>

> Internal Revenue Service (IRS) " Publications " represent the most

> accessible form of guidance to the tax rules for the general public

> and relevant IRS publications are cited for each of the tax benefits

> listed below. The IRS also issues interpretations of the code and

> regulations called " Revenue Rulings. " These interpretations are

> formal, binding policy statements.

>

> Tax professionals rely on revenue rulings in advising clients about

> tax liabilities and tax benefits. For example, Revenue Ruling 78-340,

> discussed later, authorizes a medical expense deduction for tuition

> or tutoring fees paid for a child with a severe disability who is

> attending a special school at the recommendation of the child's

> doctor.

>

> Tip: Relative caretakers, such as grandparents or aunts, and non-

> relative caretakers, such as foster parents, also may qualify for tax

> benefits.

>

> Tax Benefits: Deductions vs. Credits

>

> Deductions

>

> It's important to distinguish between two different categories of tax

> benefits. One category is a " deduction from taxable income " or

> simply " a deduction. " The value of a deduction is based on the

> marginal tax rate of the taxpayer.

>

> If a person has a tax deduction " worth $1,000, " the actual value of

> the deduction will be determined by the taxpayer's tax rate. So a

> taxpayer in the lowest tax rate bracket, 10 percent, will have

> taxable income reduced by $1,000, and save $100 (10 percent of

> $1,000). However, a taxpayer in a higher bracket, for example, 28

> percent, will have taxable income reduced by $1,000, and save $280

> (28 percent of 1,000).

>

> Tax Credits

>

> The second tax benefit is a tax credit, which is a dollar-for-dollar

> reduction in tax liability. An individual with a tax credit worth

> $1,000 will have his tax bill reduced by $1,000. This means that the

> actual amount of taxes is reduced by the amount of the tax credit.

>

> However, because tax laws and procedures are very complicated, other

> factors can influence the ultimate value to the taxpayer.

>

> Besides Parents, Who Can Claim a Child as a Dependent?

>

> A relative caretaker (e.g., a grandparent or aunt), or a non-relative

> caretaker (e.g., a foster parent or legal guardian), may be able to

> claim a child as a dependent and qualify for related tax benefits. A

> relative caretaker and the child are not required to live in the same

> household. More information is available in IRS Publication 501 at pp

> 9-12.

>

> Eligibility is determined by a five-part test. The most critical

> requirement is that the caretaker must provide more than half of

> overall financial support for the child. For example, there may be

> cases where the caretaker is making a substantial financial

> contribution toward disability-related expenses (e.g., private school

> tuition) that represents more than half of the overall cost of

> support for the child. In those situations, the caretaker could list

> the child as a dependent, and claim the tuition as a medical expense

> deduction on Schedule A.

>

> Summary of Tax Benefits

>

> The following summarizes the principal tax benefits that may be

> available to families caring for children with disabilities.

>

> Retroactive Claims for Refunds

>

> The IRS allows taxpayers to file amended returns, and collect refunds

> for unclaimed tax benefits, retroactively up to three years. This

> means a taxpayer can file an amended return for the 2003 tax year

> (and also for the 2004 and 2005 tax years) and claim a refund if the

> return is filed not later than April 15, 2007. (See IRS Publication

> 17: Your Federal Income Tax, at pp. 18-19.)

>

> Medical Expense Deductions

>

> The IRS has ruled that tuition costs for a special school that has a

> program designed to educate children with disabilities and amounts

> paid for a child's tutoring by a teacher specially trained and

> qualified to deal with severe disabilities may also be deducted.

> (Revenue Ruling 78-340, 1978-2 C.B. 124.)

>

> Special instruction or training or therapy, such as sign language

> instruction, speech therapy, and remedial reading instruction also

> would be deductible. Related books and materials can qualify for the

> medical expense deduction.

>

> Generally, 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, autism spectrum disorder, or AD/HD made by a

> medical professional.

>

> Transportation expenses to the special school or to the tutor also

> qualify for a medical expense deduction. If transportation is by car,

> the allowable expense in 2006 is eighteen cents per mile plus parking

> and tolls, or the actual cost of operating the vehicle.

>

> Diagnostic evaluations also qualify for a medical expense deduction.

> 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 adapted as part of the IEP) must be reported as taxable

> income for the year in which the reimbursements are received.

>

> 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 percent 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 percent of adjusted gross

> income, a significant threshold for many families. (See IRS

> Publication 502: Medical and Dental Expenses.)

>

> What expenses qualify for a tax deduction?

>

> The following expenses may qualify for the deduction if a medical

> professional recommends the service or treatment for the child and

> there is a medical diagnosis of a neurological disorder, such as

> severe learning disability:

>

> Tuition to a private school

> Tutoring

> Specialized materials (e.g., books, software, and instructional

> material)

> Diagnostic evaluations (by a private practitioner)

> Therapy

> Transportation expenses to the private school or tutor

> Health Saving Accounts & Flexible Savings Arrangements

>

> Alternative approaches to obtaining tax benefits in connection with

> medical expenses may involve use of a Health Saving Account (HSA) or

> a Flexible Savings Arrangement (FSA). All of the disability-related

> expenses listed above can be paid through an HSA or FSA with pre-tax

> dollars. An HSA allows a worker to use up to $5,450 in pretax income

> for medical expenses. An HSA may only be opened where the employee

> has a " high deductible " health insurance plan. Amounts placed in an

> HSA may be carried over to following years if not used.

>

> A Flexible Savings Arrangement (FSA) can be part of a " cafeteria

> plan " of alternative fringe benefits offered by an employer. An

> employee can allocate pre-tax income to the account, and then

> withdraw it during the year to pay for medical expenses. Employers

> may also make contributions to the FSA, and the maximum amount is set

> by the terms of the employer plan.

>

> Two important conditions are:

>

> 1. The amount to be placed in the account must be determined by the

> employee at the beginning of the year.

>

> 2. Funds in the FSA that are not used by the end of the year are

> lost. However, a recent amendment allows a one-time transfer of FSA

> funds to an HSA.

>

> The employer's human resource office can provide more information.

> Also, see IRS Publication 969, Health Savings Accounts and Other Tax-

> Favored Health Plans.

>

> Deduction for Disability Related Conferences

>

> In May 2000 the IRS issued Revenue Ruling 2000-24, which offers

> guidance — and good news — for parents of children with disabilities.

> Parents who attend conferences to obtain medical information

> concerning treatment for and care of their child may deduct some of

> the costs of attending a medical conference relating to a dependent's

> chronic health condition.

>

> The important points to remember are:

>

> Medical expenses are deductible only to the extent that they exceed

> 7.5 percent of an individual's adjusted gross income, and that

> limitation applies to this deduction as well;

> Costs for admission and transportation to a medical conference

> relating to your dependent's chronic health condition are now

> deductible, if the costs are primarily for and essential to the care

> of the dependent.

> Costs of meals and lodging related to a conference, however, are not

> deductible. (Note, however, lodging, up to $50 per night, is

> deductible if you must travel and stay at a hotel while your

> dependent is receiving medical treatment from a licensed physician in

> a hospital or a related or equivalent setting.)

> Costs are " primarily for and essential to the care of the dependent "

> (and therefore deductible) if:

> The parent attends the conference upon the recommendation of a

> medical provider treating the child;

> The conference disseminates medical information concerning the

> child's condition that may be useful in making decisions about the

> treatment of or caring for the child;

> The primary purpose of the visit is to attend the conference. While

> at the conference, the parent's social and recreational activities in

> the city he or she is visiting are secondary to attendance at the

> conference;

> The conference deals with specific issues related to a medical

> condition and does not just relate to general health and well-being.

> Child and Dependent Care Credit

>

> The Child and Dependent Care Credit is allowed for work-related

> expenses incurred for dependents of the taxpayer. Generally the

> dependent must be under the age of 13. However, if the child has a

> disability and requires supervision, the age limit is waived. For

> example, a 16-year-old with severe AD/HD and a behavior disorder who

> cannot be left without adult supervision would be a qualifying child

> for this credit.

>

> Expenses up to $3,000 per year for one qualifying dependent and up to

> $6,000 for two or more qualifying dependents are allowed. Expenses

> for regular childcare services, after-school programs, and summer

> camp qualify although overnight summer camp expenses do not. Payments

> to a relative to care for a child also qualify, as long as the

> relative is not a dependent of the taxpayer. The credit is calculated

> at 20-35 percent of allowable expenses, based on the family's

> adjusted gross income. The average credit is about $600 but can be as

> high as $2,100. (See IRS Publication 503: Child and Dependent Care

> Expenses.)

>

> Exemption for Dependents

>

> A taxpayer is entitled to claim an exemption for each qualified

> dependent. This may appear relatively straightforward, but

> caretakers, such as grandparents, aunts, or even foster parents, may

> overlook exemptions. Also, in some cases following a divorce, a non-

> custodial parent who provides the majority of support for a child

> with a disability, and also pays for medical/educational expenses

> related to the child's disability, may likewise qualify for both the

> exemption and medical expense deductions.

>

> A new definition of " qualifying child " took effect in the 2005 tax

> year; the most significant change is that the taxpayer need not show

> support for a " qualifying child " but the child must have lived with

> the taxpayer for more than six months during the tax year. For each

> dependent, there is an exemption from taxable income, worth $3,300

> for the 2006 tax year. For a taxpayer with a marginal tax rate of 25

> percent, each exemption will reduce the tax liability by $825.

> Equally important, the dependency status is required for some tax

> benefits such as the child and dependent care credit listed above.

> Also dependents under age 17 qualify for the Child Tax Credit, worth

> up to $1,000 per child. (See IRS Publication 501: Exemptions,

> Standard Deduction and Filing Information, and Instructions to Form

> 1040.)

>

> Gift Tax

>

> Note: The gift tax — which imposes a tax on the donor for gifts over

> $12,000 — generally doesn't apply to payments for medical expenses or

> education. This is a complex topic, and should be discussed with a

> tax advisor when a taxpayer provides, or plans to provide, an amount

> greater that $12,000 to anyone not a dependent.

>

> Earned Income Tax Credit

>

> Families filing a return as single or head of household with adjusted

> gross income under $36,348 ($38,343 for married taxpayers filing a

> joint return) may qualify for the Earned Income Tax Credit (EITC)

> based on the presence of one or two " qualifying children " in the

> taxpayer's home.

>

> For EITC purposes, a " qualifying child " is a biological child,

> adopted child, step child, or foster child who resided with the

> taxpayer for more than six months during the calendar year, and is

> under age 19 at the end of the year. A " qualifying child " is also a

> child age 19-23 who is a full-time student for at least one semester.

> Finally, a severely disabled child is a " qualifying child " without

> regard to age, even into adulthood, as long as the child continues to

> live with his parent(s).

>

> Note that a " qualifying child " for EITC does not have to meet the

> requirements for a dependency exemption. EITC benefits are as high as

> $4,536 for families with two or more qualifying children, although

> the average EITC nationally is about $1,900. (See IRS Publication

> 596: Earned Income Tax Credit for more information.)

>

> Where to Get More Information

>

> The IRS provides free booklets that cover each of the topics listed

> above. The titles listed below may be ordered by calling the IRS toll-

> free number -(800) 829-3676. Generally, taxpayers may order up to

> three copies of any publication or form. The following booklets may

> be helpful:

>

> IRS Publication 17: " Your Federal Income Tax " (a comprehensive 300+

> page guide) http://www.irs.gov/pub/irs-pdf/p17.pdf

> IRS Publication 502: Medical and Dental Expenses

> http://www.irs.gov/pub/irs-pdf/p502.pdf

> IRS Publication 503: Child and Dependent Care Expenses

> http://www.irs.gov/pub/irs-pdf/p503.pdf

> IRS Publication 501: Exemptions, Standard Deduction and Filing

> Information http://www.irs.gov/pub/irs-pdf/p501.pdf

> IRS Publication 596: Earned Income Tax Credit

> http://www.irs.gov/pub/irs-pdf/p596.pdf

> IRS Publication 969: Health Savings Accounts and Other Tax-Favored

> Health Plans http://www.irs.gov/pub/irs-pdf/p969.pdf

> Extensive information can also be obtained from the IRS.

> http://www.irs.gov/formspubs/index.html

>

> The American Bar Association Section on Taxation contains links to

> scores of tax-related sites.

> http://www.abanet.org/tax/sites.html#state

>

> Tax Counseling and Tax Preparation Assistance

>

> Certified Public Accountants (CPAs) represent one source of tax

> advisors, although not all CPAs have expertise in this area.

> http://www.aicpa.org/states/stmap.htm

>

> Enrolled Agents are individuals licensed by the IRS to represent

> taxpayers, and this group generally has a high degree of expertise.

> http://www.naea.org/MemberPortal/StateAffiliates/Listing/

>

> Typically, charges for a tax return with multiple deductions and

> credits will cost $150-300. Several national companies provide tax

> preparation and tax counseling services. Many operate only during the

> tax filing season but a small number in larger urban areas are open

> year round. Fees charged by these companies are slightly lower than

> the fees typically charged by CPAs and Enrolled Agents.

>

> Some parents may not be able to afford fees charged by professional

> tax preparers, who generally seek payment in advance. An option for

> lower income clients is the Volunteer Income Tax Assistance (VITA)

> program. However, because of broad range in skills and expertise of

> volunteers, caution is recommended. Some large cities have one or

> more VITA programs that offer professional level services. A

> university accounting department or the local legal services program

> may be able to help you identify a high quality VITA program.

>

> Disputes with the IRS

>

> Disputes with the IRS are relatively rare; less than 1.5 percent of

> all individual income tax returns are subject to an IRS audit.

> However, if the IRS questions your return, and you feel an IRS agent

> is not responding properly, contact the Taxpayer Advocate for

> assistance -- toll-free: (877) 777-4778.

>

> Low Income Taxpayer Clinics are another source of help. The IRS funds

> more than 100 clinics to represent lower income taxpayers in disputes

> with the IRS or state revenue departments. Clinics assist taxpayers

> with income under 250 percent of the poverty level -- about $50,000

> for a family of four. Some clinics, especially those attached to law

> schools, will represent higher income families.

>

> Information on the nearest clinic can be obtained from the general

> IRS toll-free inquiry number: (800) 829-1040. Families above this

> income level should call their county or state bar association.

>

> Final Thoughts

>

> This guide offers a brief summary of some, but not all, of the

> potential tax benefits that may be available to you. You should

> obtain copies of the IRS publications cited above and discuss with

> your tax advisor whether these benefits apply to you. Again, you

> should not rely on this guide alone to determine whether you should

> claim any of the tax benefits reviewed here.

>

> © 2007 and Helen Schwab Foundation. Adapted with permission

> from Schwab Learning. For more information, please visit

> SchwabLearning.org.

>

> About the Author

>

> A. O'Connor is an attorney who promotes awareness of tax

> policies that benefit families. In addition, as a member of the firm

> Mauk & O'Connor, LLP, he represents parents in disputes with local

> school districts concerning special education services for learning

> disabled children. He is a Board Member of the Council of Parent

> Attorneys & Advocates (COPAA).

>

> Created: 01/29/2007

> Revised: 02/08/07

>

>

> ----------------------------------------------------------------------

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>

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> rights reserved. Contact Us | Press

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http://www.wrightslaw.com/info/tax.2006.benefits.oconnor.htm

If you have a child with a severe disability - a learning disability

(SLD), autism spectrum disorder (ASD), AD/HD, or other physical,

mental or emotional impairment - you may qualify for valuable tax

benefits. Because tax laws are complex, and many tax preparers often

do not have occasion to use these unique tax benefits, families are

at risk of losing refunds worth many thousands of dollars.

It's likely that 15-30 percent of families with a disabled child have

one or more unclaimed tax benefits.

This guide provides a brief summary of the most significant federal

income tax benefits and should not be considered legal advice. Tax

decisions should not be made simply on the basis of the information

provided here. You are advised to print out this guide and provide

your tax adviser with a copy. You should also explore potential state

income tax benefits, which are too numerous for review in this guide.

Internal Revenue Service Publications and Revenue Rulings

Internal Revenue Service (IRS) " Publications " represent the most

accessible form of guidance to the tax rules for the general public

and relevant IRS publications are cited for each of the tax benefits

listed below. The IRS also issues interpretations of the code and

regulations called " Revenue Rulings. " These interpretations are

formal, binding policy statements.

Tax professionals rely on revenue rulings in advising clients about

tax liabilities and tax benefits. For example, Revenue Ruling 78-340,

discussed later, authorizes a medical expense deduction for tuition

or tutoring fees paid for a child with a severe disability who is

attending a special school at the recommendation of the child's

doctor.

Tip: Relative caretakers, such as grandparents or aunts, and non-

relative caretakers, such as foster parents, also may qualify for tax

benefits.

Tax Benefits: Deductions vs. Credits

Deductions

It's important to distinguish between two different categories of tax

benefits. One category is a " deduction from taxable income " or

simply " a deduction. " The value of a deduction is based on the

marginal tax rate of the taxpayer.

If a person has a tax deduction " worth $1,000, " the actual value of

the deduction will be determined by the taxpayer's tax rate. So a

taxpayer in the lowest tax rate bracket, 10 percent, will have

taxable income reduced by $1,000, and save $100 (10 percent of

$1,000). However, a taxpayer in a higher bracket, for example, 28

percent, will have taxable income reduced by $1,000, and save $280

(28 percent of 1,000).

Tax Credits

The second tax benefit is a tax credit, which is a dollar-for-dollar

reduction in tax liability. An individual with a tax credit worth

$1,000 will have his tax bill reduced by $1,000. This means that the

actual amount of taxes is reduced by the amount of the tax credit.

However, because tax laws and procedures are very complicated, other

factors can influence the ultimate value to the taxpayer.

Besides Parents, Who Can Claim a Child as a Dependent?

A relative caretaker (e.g., a grandparent or aunt), or a non-relative

caretaker (e.g., a foster parent or legal guardian), may be able to

claim a child as a dependent and qualify for related tax benefits. A

relative caretaker and the child are not required to live in the same

household. More information is available in IRS Publication 501 at pp

9-12.

Eligibility is determined by a five-part test. The most critical

requirement is that the caretaker must provide more than half of

overall financial support for the child. For example, there may be

cases where the caretaker is making a substantial financial

contribution toward disability-related expenses (e.g., private school

tuition) that represents more than half of the overall cost of

support for the child. In those situations, the caretaker could list

the child as a dependent, and claim the tuition as a medical expense

deduction on Schedule A.

Summary of Tax Benefits

The following summarizes the principal tax benefits that may be

available to families caring for children with disabilities.

Retroactive Claims for Refunds

The IRS allows taxpayers to file amended returns, and collect refunds

for unclaimed tax benefits, retroactively up to three years. This

means a taxpayer can file an amended return for the 2003 tax year

(and also for the 2004 and 2005 tax years) and claim a refund if the

return is filed not later than April 15, 2007. (See IRS Publication

17: Your Federal Income Tax, at pp. 18-19.)

Medical Expense Deductions

The IRS has ruled that tuition costs for a special school that has a

program designed to educate children with disabilities and amounts

paid for a child's tutoring by a teacher specially trained and

qualified to deal with severe disabilities may also be deducted.

(Revenue Ruling 78-340, 1978-2 C.B. 124.)

Special instruction or training or therapy, such as sign language

instruction, speech therapy, and remedial reading instruction also

would be deductible. Related books and materials can qualify for the

medical expense deduction.

Generally, 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, autism spectrum disorder, or AD/HD made by a

medical professional.

Transportation expenses to the special school or to the tutor also

qualify for a medical expense deduction. If transportation is by car,

the allowable expense in 2006 is eighteen cents per mile plus parking

and tolls, or the actual cost of operating the vehicle.

Diagnostic evaluations also qualify for a medical expense deduction.

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 adapted as part of the IEP) must be reported as taxable

income for the year in which the reimbursements are received.

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 percent 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 percent of adjusted gross

income, a significant threshold for many families. (See IRS

Publication 502: Medical and Dental Expenses.)

What expenses qualify for a tax deduction?

The following expenses may qualify for the deduction if a medical

professional recommends the service or treatment for the child and

there is a medical diagnosis of a neurological disorder, such as

severe learning disability:

Tuition to a private school

Tutoring

Specialized materials (e.g., books, software, and instructional

material)

Diagnostic evaluations (by a private practitioner)

Therapy

Transportation expenses to the private school or tutor

Health Saving Accounts & Flexible Savings Arrangements

Alternative approaches to obtaining tax benefits in connection with

medical expenses may involve use of a Health Saving Account (HSA) or

a Flexible Savings Arrangement (FSA). All of the disability-related

expenses listed above can be paid through an HSA or FSA with pre-tax

dollars. An HSA allows a worker to use up to $5,450 in pretax income

for medical expenses. An HSA may only be opened where the employee

has a " high deductible " health insurance plan. Amounts placed in an

HSA may be carried over to following years if not used.

A Flexible Savings Arrangement (FSA) can be part of a " cafeteria

plan " of alternative fringe benefits offered by an employer. An

employee can allocate pre-tax income to the account, and then

withdraw it during the year to pay for medical expenses. Employers

may also make contributions to the FSA, and the maximum amount is set

by the terms of the employer plan.

Two important conditions are:

1. The amount to be placed in the account must be determined by the

employee at the beginning of the year.

2. Funds in the FSA that are not used by the end of the year are

lost. However, a recent amendment allows a one-time transfer of FSA

funds to an HSA.

The employer's human resource office can provide more information.

Also, see IRS Publication 969, Health Savings Accounts and Other Tax-

Favored Health Plans.

Deduction for Disability Related Conferences

In May 2000 the IRS issued Revenue Ruling 2000-24, which offers

guidance — and good news — for parents of children with disabilities.

Parents who attend conferences to obtain medical information

concerning treatment for and care of their child may deduct some of

the costs of attending a medical conference relating to a dependent's

chronic health condition.

The important points to remember are:

Medical expenses are deductible only to the extent that they exceed

7.5 percent of an individual's adjusted gross income, and that

limitation applies to this deduction as well;

Costs for admission and transportation to a medical conference

relating to your dependent's chronic health condition are now

deductible, if the costs are primarily for and essential to the care

of the dependent.

Costs of meals and lodging related to a conference, however, are not

deductible. (Note, however, lodging, up to $50 per night, is

deductible if you must travel and stay at a hotel while your

dependent is receiving medical treatment from a licensed physician in

a hospital or a related or equivalent setting.)

Costs are " primarily for and essential to the care of the dependent "

(and therefore deductible) if:

The parent attends the conference upon the recommendation of a

medical provider treating the child;

The conference disseminates medical information concerning the

child's condition that may be useful in making decisions about the

treatment of or caring for the child;

The primary purpose of the visit is to attend the conference. While

at the conference, the parent's social and recreational activities in

the city he or she is visiting are secondary to attendance at the

conference;

The conference deals with specific issues related to a medical

condition and does not just relate to general health and well-being.

Child and Dependent Care Credit

The Child and Dependent Care Credit is allowed for work-related

expenses incurred for dependents of the taxpayer. Generally the

dependent must be under the age of 13. However, if the child has a

disability and requires supervision, the age limit is waived. For

example, a 16-year-old with severe AD/HD and a behavior disorder who

cannot be left without adult supervision would be a qualifying child

for this credit.

Expenses up to $3,000 per year for one qualifying dependent and up to

$6,000 for two or more qualifying dependents are allowed. Expenses

for regular childcare services, after-school programs, and summer

camp qualify although overnight summer camp expenses do not. Payments

to a relative to care for a child also qualify, as long as the

relative is not a dependent of the taxpayer. The credit is calculated

at 20-35 percent of allowable expenses, based on the family's

adjusted gross income. The average credit is about $600 but can be as

high as $2,100. (See IRS Publication 503: Child and Dependent Care

Expenses.)

Exemption for Dependents

A taxpayer is entitled to claim an exemption for each qualified

dependent. This may appear relatively straightforward, but

caretakers, such as grandparents, aunts, or even foster parents, may

overlook exemptions. Also, in some cases following a divorce, a non-

custodial parent who provides the majority of support for a child

with a disability, and also pays for medical/educational expenses

related to the child's disability, may likewise qualify for both the

exemption and medical expense deductions.

A new definition of " qualifying child " took effect in the 2005 tax

year; the most significant change is that the taxpayer need not show

support for a " qualifying child " but the child must have lived with

the taxpayer for more than six months during the tax year. For each

dependent, there is an exemption from taxable income, worth $3,300

for the 2006 tax year. For a taxpayer with a marginal tax rate of 25

percent, each exemption will reduce the tax liability by $825.

Equally important, the dependency status is required for some tax

benefits such as the child and dependent care credit listed above.

Also dependents under age 17 qualify for the Child Tax Credit, worth

up to $1,000 per child. (See IRS Publication 501: Exemptions,

Standard Deduction and Filing Information, and Instructions to Form

1040.)

Gift Tax

Note: The gift tax — which imposes a tax on the donor for gifts over

$12,000 — generally doesn't apply to payments for medical expenses or

education. This is a complex topic, and should be discussed with a

tax advisor when a taxpayer provides, or plans to provide, an amount

greater that $12,000 to anyone not a dependent.

Earned Income Tax Credit

Families filing a return as single or head of household with adjusted

gross income under $36,348 ($38,343 for married taxpayers filing a

joint return) may qualify for the Earned Income Tax Credit (EITC)

based on the presence of one or two " qualifying children " in the

taxpayer's home.

For EITC purposes, a " qualifying child " is a biological child,

adopted child, step child, or foster child who resided with the

taxpayer for more than six months during the calendar year, and is

under age 19 at the end of the year. A " qualifying child " is also a

child age 19-23 who is a full-time student for at least one semester.

Finally, a severely disabled child is a " qualifying child " without

regard to age, even into adulthood, as long as the child continues to

live with his parent(s).

Note that a " qualifying child " for EITC does not have to meet the

requirements for a dependency exemption. EITC benefits are as high as

$4,536 for families with two or more qualifying children, although

the average EITC nationally is about $1,900. (See IRS Publication

596: Earned Income Tax Credit for more information.)

Where to Get More Information

The IRS provides free booklets that cover each of the topics listed

above. The titles listed below may be ordered by calling the IRS toll-

free number -(800) 829-3676. Generally, taxpayers may order up to

three copies of any publication or form. The following booklets may

be helpful:

IRS Publication 17: " Your Federal Income Tax " (a comprehensive 300+

page guide) http://www.irs.gov/pub/irs-pdf/p17.pdf

IRS Publication 502: Medical and Dental Expenses

http://www.irs.gov/pub/irs-pdf/p502.pdf

IRS Publication 503: Child and Dependent Care Expenses

http://www.irs.gov/pub/irs-pdf/p503.pdf

IRS Publication 501: Exemptions, Standard Deduction and Filing

Information http://www.irs.gov/pub/irs-pdf/p501.pdf

IRS Publication 596: Earned Income Tax Credit

http://www.irs.gov/pub/irs-pdf/p596.pdf

IRS Publication 969: Health Savings Accounts and Other Tax-Favored

Health Plans http://www.irs.gov/pub/irs-pdf/p969.pdf

Extensive information can also be obtained from the IRS.

http://www.irs.gov/formspubs/index.html

The American Bar Association Section on Taxation contains links to

scores of tax-related sites.

http://www.abanet.org/tax/sites.html#state

Tax Counseling and Tax Preparation Assistance

Certified Public Accountants (CPAs) represent one source of tax

advisors, although not all CPAs have expertise in this area.

http://www.aicpa.org/states/stmap.htm

Enrolled Agents are individuals licensed by the IRS to represent

taxpayers, and this group generally has a high degree of expertise.

http://www.naea.org/MemberPortal/StateAffiliates/Listing/

Typically, charges for a tax return with multiple deductions and

credits will cost $150-300. Several national companies provide tax

preparation and tax counseling services. Many operate only during the

tax filing season but a small number in larger urban areas are open

year round. Fees charged by these companies are slightly lower than

the fees typically charged by CPAs and Enrolled Agents.

Some parents may not be able to afford fees charged by professional

tax preparers, who generally seek payment in advance. An option for

lower income clients is the Volunteer Income Tax Assistance (VITA)

program. However, because of broad range in skills and expertise of

volunteers, caution is recommended. Some large cities have one or

more VITA programs that offer professional level services. A

university accounting department or the local legal services program

may be able to help you identify a high quality VITA program.

Disputes with the IRS

Disputes with the IRS are relatively rare; less than 1.5 percent of

all individual income tax returns are subject to an IRS audit.

However, if the IRS questions your return, and you feel an IRS agent

is not responding properly, contact the Taxpayer Advocate for

assistance -- toll-free: (877) 777-4778.

Low Income Taxpayer Clinics are another source of help. The IRS funds

more than 100 clinics to represent lower income taxpayers in disputes

with the IRS or state revenue departments. Clinics assist taxpayers

with income under 250 percent of the poverty level -- about $50,000

for a family of four. Some clinics, especially those attached to law

schools, will represent higher income families.

Information on the nearest clinic can be obtained from the general

IRS toll-free inquiry number: (800) 829-1040. Families above this

income level should call their county or state bar association.

Final Thoughts

This guide offers a brief summary of some, but not all, of the

potential tax benefits that may be available to you. You should

obtain copies of the IRS publications cited above and discuss with

your tax advisor whether these benefits apply to you. Again, you

should not rely on this guide alone to determine whether you should

claim any of the tax benefits reviewed here.

© 2007 and Helen Schwab Foundation. Adapted with permission

from Schwab Learning. For more information, please visit

SchwabLearning.org.

About the Author

A. O'Connor is an attorney who promotes awareness of tax

policies that benefit families. In addition, as a member of the firm

Mauk & O'Connor, LLP, he represents parents in disputes with local

school districts concerning special education services for learning

disabled children. He is a Board Member of the Council of Parent

Attorneys & Advocates (COPAA).

Created: 01/29/2007

Revised: 02/08/07

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