4 Tax Considerations for Parents of Special Needs Children

Special Needs Planning

special needs planning


Parents of special needs children have a few ways to minimize taxes.

Special needs children may require the expenditure of significant sums for day-to-day healthcare, home modifications, and education programs. Fortunately, however, these expenses typically offer some tax advantages. Families with special needs children in North Carolina have a few options on both the state and federal levels for maximizing their tax breaks. When discussing special needs planning, review a few tax considerations below:
1. Deduct qualified expenses. The Internal Revenue Service recognizes deductions for medical expenses, including items such as:
  • Some education expenses
  • Home modifications that improve accessibility for the disabled person
  • Long-term care insurance premiums (limitations)
  • Artificial limbs
  • Contact lenses/eyeglasses
  • Hearing aids and special telephone equipment
  • Partial cost of Braille books and magazines
  • Purchase and maintenance of a wheelchair
  • Cost and ongoing care expenses of a guide dog
2. Tax credits. Families with special needs children in North Carolina who meet certain requirements were able to claim a state tax credit of up to $3,000 per semester ($6,000 annually) for qualified educational expenses through the 2013 tax year. Qualified educational expenses included costs for tuition, tutoring, or therapy, according to Part 2 of Article 4 of Chapter 105 of the General Statutes § 105-151.33, which was passed into law in 2011 and expired in 2013. If you missed the opportunity to deduct these expenses, consult with a North Carolina tax attorney or CPA and file an amended return.
3. Claim dependent. Parents who provide at least half of their disabled child’s support may claim their child as a dependent even if their child has reached the age of majority. (Learn more about planning options when special needs children become adults.) If the disabled child is able to work, their income must not exceed the $3,900 (as of 2014) annual threshold in order to be claimed as a dependent.
4. Special needs trust. Trust income may be taxed to parents, if the child is a minor, for distributions to or for the benefit of the child. Fortunately, the income can often be offset by medical expense deductions. When creating or administering a special needs trust, discuss options with a lawyer. How the trust is structured may also affect if parents are able (or if there is an advantage to) claim the disabled child as a dependent. Learn about the Special Needs Trust Fairness Act that is still being discussed by lawmakers. The Act may impose new requirements on how special needs trusts are established.
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