Dependency Exemption:
Qualifying Child: You may claim your child as a dependent, regardless of age, if they are permanently and totally disabled. This means the child cannot engage in substantial gainful activity due to a physical or mental condition, and a doctor has determined the condition has lasted or can be expected to last continuously for at least a year or can lead to death. irs.gov
Medical Expense Deductions:
Qualified Expenses: Many expenses related to your child's special needs may be deductible as medical expenses. These can include costs for special education, therapy, medical equipment, and home modifications necessary for accessibility. To deduct these expenses, you must itemize deductions on your tax return, and the total medical expenses must exceed 10% of your adjusted gross income. specialneedsalliance.org
Child and Dependent Care Credit:
Eligibility: If you pay for care for your child so that you (and your spouse, if filing jointly) can work or look for work, you may qualify for this credit. Notably, there is no age limit for a child who is unable to care for themselves due to a physical or mental disability. kiplinger.com
Earned Income Tax Credit (EITC):
Qualifying Child: You may qualify for the EITC if your child is permanently and totally disabled, regardless of their age, as long as you meet other requirements. The EITC is a refundable credit that can reduce the amount of tax you owe and may result in a refund. irs.gov
Adoption Credit:
Special Needs Adoption: If you adopt a child with special needs, you may be eligible for the adoption credit, which allows you to claim qualified adoption expenses and exclude employer-provided adoption benefits from your income. For 2024, the maximum credit and exclusion amount is $16,810 per child. irs.gov
Achieving a Better Life Experience (ABLE) Accounts:
Tax-Advantaged Savings: ABLE accounts allow you to save for disability-related expenses without affecting eligibility for government benefits. Contributions are made with after-tax dollars, but earnings grow tax-free, and distributions for qualified expenses are not taxable. Some states also offer tax deductions or credits for contributions to ABLE accounts. kiplinger.com
By understanding and utilizing these tax benefits, parents of children with special needs can effectively manage expenses and reduce their tax burden. It's advisable to consult with a tax professional to ensure all applicable benefits are maximized and to stay updated on any changes in tax laws.