(Reprinted from The Wall Street Journal and edited)
NEW YORK - A recent ruling by the Internal Revenue Service (IRS) may help ease the financial pain of families who pay large amounts for a child's special education to overcome dyslexia and other learning disabilities. The so-called private letter ruling helps clarify the IRS view on a murky area: when special education costs - such as tuition, meals, and lodging - may qualify as deductible medical expenses.
A private-letter ruling applies only to the taxpayers who requested it and isn't supposed to be cited as precedent. Even so, tax advisers say it is a useful illustration of the IRS's thinking, and could come as a pleasant surprise to some parents.
The ruling involved payments on behalf of two children diagnosed as having "disabilities caused by medical conditions, including dyslexia," that "handicap their ability to learn." The school offered the children a program of special education designed to help them deal with their "medical handicaps" and move on to study at a "regular school." The taxpayers had asked IRS to agree they could deduct their tuition because the school is a "special school." The IRS replied that isn't the standard under the law. IRS said: "Deductibility of tuition depends on exactly what the school provides an individual because a school can have a normal education program for most students, and a special education program for those who need it. Thus, a school can be 'special' for one student but not for another."
IRS concluded both children were attending School X "principally to receive medical care in the form of special education" and their tuition was deductible as a medical expense. That is an important nuance, tax specialists say. "The gist is that a school doesn't have to be attended exclusively by children with learning disabilities in order for tuition to be deductible," says Martin Nissenbaum, national director of personal income-tax planning at Ernst & Young. Instead, tuition and other costs may be deductible "for just those learning-disabled children who participate in a special program in a
regular school, as long as participation in that program is their principal reason for attending the school."
The IRS ruling emphasized several other points. For example, a physician or some other "qualified professional" must diagnose a "medical condition requiring special education to correct the condition" for the
education to be considered medical care. While the school doesn't have to employ physicians to provide the special education, it must have "professional staff competent to design and supervise a curriculum providing medical care." Furthermore, conquering the learning disabilities "must be a principal reason for attending the school, and any ordinary education received must be incidental to the special education provided."
The IRS offers general tips in its Publication 502 on medical expenses, but even a close read of the publication could leave parents of special education children puzzled over how much, if any, such payments qualify as medical expenses.
Reminder: Generally, medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income. Even if the expenses don't exceed the limit, you still may be able to pay them with pretax dollars through your employer's flexible spending account, Nissenbaum says. |
