Parents of disabled children need every break they can get, and the Internal Revenue Service is willing to help out in a number of respects. It has some rules defining exactly what qualifies as a disability, however. Your dependent child must be incapable of "gainful activity" – which generally means employment – and a physician must establish that his condition could lead to death or that he's not likely to improve in less than a year.
The IRS is particular about who qualifies as a dependent, but it relaxes some of its criteria for disabled children. For example, although age limits apply to other dependent children, the IRS waives them for those with disabilities – it doesn't matter how old your child is. For purposes of the child and dependent care tax credit, if your disabled dependent doesn't qualify as your child for some reason, the IRS lifts the rule that his income must not exceed the amount of that year's personal exemption – $3,900 as of 2013. Residency rules still apply however. If your dependent is your qualifying child, he must live with you for more than half the year unless he's institutionalized, and he can't provide for more than half his own support, such as through Social Security disability payments or passive income.
Child and Dependent Care Credit
The child and dependent care tax credit is a percentage of what you spend on child care while you – and your spouse, if you're married – work or look for work. It normally only covers children up to age 13. If your child is incapable of caring for himself, however, or if he requires round-the-clock attention for the sake of his own safety or that of others, it doesn't matter if he's older than this. If you pay someone to care for him while you and your spouse are away from home for work purposes, you can claim a credit for as much as 35 percent of up to $3,000 of what you paid for one child, or up to $6,000 for two or more children, as of 2013. If you earn $43,000 or more a year, however, the amount of the credit drops to 20 percent. The maximum credit would top out at $600 for one child, or $1,200 for two or more. If you have other children who aren't disabled, you can include their child care costs for this credit.
In addition to the child care credit, other help is available if you itemize your deductions. If you do so, you can deduct myriad costs related to your child's disability as medical expenses. They include the usual doctor appointments, insurance premiums and insurance costs, as well as things like mileage for driving your child for care, exercise programs if they're designed to help your child's condition, any special equipment he needs, or even home improvements you make to accommodate his disability if they add to the value of your home. Unfortunately, the total of these expenses must exceed 10 percent of your adjusted gross income before you can deduct the balance.
If your dependent child requires special schooling, you can use this to your advantage at tax time as well. You can itemize the cost as a medical expense deduction, which can help you exceed 10 percent of your AGI. Enrollment must be required because it accommodates or aids his disability. The cost of special educational therapies counts as well, such as for speech problems.
- IRS: Publication 907
- IRS: Qualifying Child Rules
- Talk About Curing Autism: Tax Strategies for Parents of Kids With Special Needs
- IRS: A "Qualifying Child"
- IRS: Personal Exemptions and Dependents
- IRS: Annual Inflation Adjustments for 2013
- Maloney & Novotny: Tougher New Rule for Medical Expense Deductions Begins This Year
- CNNMoney: Fiscal Cliff Deal Protects Family Tax Breaks
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.