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Annual income tax guide.

The 1986 Tax Reform Act made major changes in the income tax laws. The most important change related to parenting a child with a disability was limiting the deductibility of medical and dental expenses. Taxpayers may now only deduct the part of medical and dental expenses and health insurance costs that exceed 7.5 percent of adjusted gross income

Since many families that include a child with a disability have significant medical expenses that are not covered by health insurance or other reimbursement programs, this article will concentrate on medical expenses. The article will also discuss other aspects of current tax laws that are likely to affect our readers, including changes made during 1989 and special employment programs for adults with disabilities. LET THE IRS KNOW WHO YOU ARE

The IRS processes tax returns by a computer that automatically singles out an taxpayer who claims high deductions. Parents can reduce the likelihood of their tax returns being audited by explaining their child's disability and the deductions being claimed in a letter accompanying their return.

In addition, enclose a letter from the child's primary physician: (1) explaining th nature of the child's disability and the prescribed care, including a list of all specialists, therapists, physicians, and treatments necessary to the child's health and (2) verifying your child's participation in these programs. Be sure to keep copies o both letters for your files. KEEP CAREFUL RECORDS

It is of upmost importance to keep complete and accurate records! Record all expenses related to the child's disability from expensive operations and prescribed drugs to over-the-counter medicine recommended by your physician. Always get a receipt to back up your records, whether you pay by check or in cash. If no formal receipt is available, note the specifics listed above on a slip of paper, have it signed, and file it with your records.

In a notebook record: (1) date of payment- (2) name and address of the person providing the service; (3) brief description of service provided; and (4) amount paid.

As a general practice, keep all cancelled checks, bills and receipts related to deductible expenses. Expenses are deductible in the year in which the payment is made. Thus, if a child has an operation in December, 1989, but the hospital bill is paid in January, 1990, the expense is deductible on your 1990 return.

Although it is not necessary to file all these records with a return, they will help you fill out your return correctly. Moreover, they are invaluable should the IRS audit your return. The IRS may audit tax returns up to seven years after they are filed - so keep all records in a safe place for seven years. MEDICAL DEDUCTIONS

When a family's medical expenses exceed 7.5 percent of the family's adjusted gross income and parents are itemizing deductions on their tax return, all out-ofpocket expenses related to medical and dental care which were not reimbursed can be deducted. Remember that only the part of medical, dental expenses and health insurance costs which exceeds 7.5 percent o adjusted gross income is deductible. Taxpayers must be sure to reduce medical expenses by the total reimbursements received (including payments made directly to doctors or hospitals).

Medical expenses are payments made for the diagnosis, treatment, or prevention of disease. Transportation costs to receive care are considered part of medical expenses as are health insurance payments.

Parents who pay medical expenses for a person who could have been claimed as a dependent except for the fact that the person had an income of $2,000 or more, or filed a joint return, can include such medical expenses as deductible on their tax return. CHANGES FOR 1989

The major changes for parents this year are social security numbers for their children, reporting requirements with Child Care Credit, Employer Child Care Assistance, Earned Income Credit, Dependency Exemptions for Full-Time Students and Educational Savings Bonds.

Social Security Numbers. Beginning with 1989 tax returns, a social security number is required for children ages two and over. To obtain a social security number, file a Form SS-5 with your local Social Security Office. If a number is not received by the filing deadline, you can write "applied for" on the tax return.

Child Care Reporting Requirements. Working people who take tax credits or exclusions for dependent care and child and dependent care providers have new reporting requirements for income tax returns due April 1990.

A provision of the Family Support Act of 1988 now requires that:

9 care providers, except those that are tax-exempt, give their Taxpayer Identification Number (TIN) to any client who plans to take a credit or an exclusion for the cost of the care; and

o taxpayers who take this credit or exclusion must write in the correct name, address and TIN of the care provider on their federal income tax returns.

Generally if you pay someone else to take care of your child who is under 13 or for a dependent with a disability, you may be able to take a tax credit of up to 30 percent of the cost of the care. Expenses for which the credit may be claimed are limited to $2,400 for one dependent and $4,800 for two or more. Employees whose employers provide child or dependent care may, under certain circumstances, exclude up to $5,000 of the value of this care from their gross income.

For individuals, their social security numbers are their correct TINS. For others, the employer identification number is usually the correct TIN. Care providers who willfully refuse to comply with this new requirement may be subject to a $50 penalty for each violation.

To claim this tax credit or take the exclusion for employer-provided assistance, get new IRS Form W-10, "Dependent Care Provider's Identification and Certification," and give one to each care provider to fill out and return. For example, if during the year you change from one provider to another, you would have to give a Form W-10 to both. This form, like the W-4 employees file with employers, does not go to the IRS. Instead, keep it with your records. Forms W-10 are available at an IRS office or may be ordered by calling 1-800-424-3676. You can write for forms as follows:

If you are located in Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, or Wyoming, send to: Forms Distribution Center, Rancho Cordova, Calif. 95743-0001.

If you are located in Alabama, Arkansas, Illinois, Indiana, lowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, or Wisconsin, send to: Forms Distribution Center, P.O. Box 9903, Bloomington, 111. 61799.

If you are located in Connecticut, Delaware, District of Columbia, Florida, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, or West Virginia, send to: Forms Distribution Center, P.O. Box 25866, Richmond, Va. 23289.

In cases where a provider refuses to give all the necessary information, taxpayers should provide as much information as they can and keep records. A copy of a recently printed letterhead or billhead will serve to verify the provider's name and address. If the care provider is an employee, a copy of a properly prepared W-4, "Employee's Withholding Allowance Certificate," will have all the necessary information.

Employer Child Care Assistance. If an employer provided child care or so-called disabled dependent care services to allow a parent to work, the amount the employer paid within certain limits is not considered income to the parent. (The amount that can be excluded from income is limited to $5,000 for a joint return, $2,500 for a married person filing separately, or the amount of a parent's earned income if less than $2,500.) Such care must be provided under an employer's written plan that doesn't favor employees and meets other qualifications.

Some employers are assisting in the payment of dependent care (as well as medical care) by withholding a limited amount of funds from regular paychecks prior to calculating the usual income tax and social security deductions and then reimbursing employees for dependent care or medical care costs (See Code Section 89). This enables the employee to pay these expenses with pre-tax dollars. Parents cannot receive child care credit if they receive this employer assistance.

For further information, contact the IRS at 1-800424-3676 and ask for free IRS Publication 503, "Child and Dependent Care."

Earned Income Credit. Taxpayers with an income under $19,340 and who have a child are eligible for an Earned Income Credit (EIC). If you are entitled to the EIC, you can subtract it from the tax you owe or get a refund even if you did not have tax withheld from your pay. The credit can be as much as $910.

To be eligible for EIC you must have earned income during the year. Generally, earned income includes wages, salaries, tips, and self-employment income. Earned income doesn't include social security payments, welfare benefits or unemployment compensation.

Certain conditions have to be met in order to take this credit. For example, you must have a child living with you for more than half the year and your main home must be in the U.S. Your filing status must be married filing a joint return, qualifying widow(er) with dependent child, or head of household.

Because of higher minimum income for filing requirements, many families are no longer required to file a return. Even if you are not required to file an income tax return, if you qualify for the EIC you should file to get a refund. If you want, the IRS will figure both your tax and your EIC on Form 1040 or 1040A. For further information, refer to the free IRS Publication 596, "Earned Income Credit."

MEDICAL * extra costs for salt-free or

DEDUCTIONS other special food;

prescribed by a doctor;

Publication 502 * a stereo for a person

confined to the house;

* hand controls for the car

of a person with disabilities;

* a car telephone for a

person who may require

immediate medical

assistance; * lip-reading instructions;

extra costs for medically necessary equipment, such as a whirlpool, central air conditioning, or swimming pool; * health insurance premiums; * fees to doctors, dentists, hospitals, clinics; * fees for x-rays and tests; * fees for in-patient treatment or rehabilitation services; * fees for physical therapy, occupational therapy, and speech therapy, or any medically-prescribed therapy; * payments for prescriptions and medical supplies (be sure to have a doctor's written recommendation for supplies); * all long-distance phone calls related to medical care, scheduling of medical appointments and ordering medical supplies; * out-of-pocket expenses for prescribed medical equipment, including wheelchairs, crutches, braces, special mattresses, boards and the cost to maintain them (again, a written prescription is needed); * ambulance services; * mileage or transportation costs to get medical care, pharmacy or medical supplies; * expenses for gas, tolls, and parking of an automobile to and from the hospital, clinic or pharmacy; * meal and hotel costs related to getting medical care for any family member and the cost of a parent's lodging, meals and transportation if a parent needs to accompany a child to receive health services; * cost of eye glasses, contact lenses, and hearing aids, including eye and hearing examination fees; * tuition or fees for tutoring that is prescribed by your physician; * the cost of special schools or camps designed to treat a disability, including the cost of meals and lodging, when prescribed by a physician; * the cost to parents for attending a special workshop concerning their child's disability, or anything related including subscriptions to disability publications, such as EXCEPTIONAL PARENT, if prescribed by a physician. * capital expenses (amounts paid for special equipment installed in your home, such as a wheelchair, or for improvements if the main reason is for medical care). Note: The amount deductible is the cost less any increase in value of your home. * personal use items ordinarily used for personal, living, and family purposes if it is used primarily to prevent or alleviate a disease or disability. * cassette books for a person with a vision impairment may be included (if prescribed). The difference in cost between the special cassette and the ordinary cost of the book is considered a medical expense. * television: the cost of equipment that displays the audio part of television programs as subtitles for people with hearing impairments. This may include the cost of an adapter that attaches to a regular set.

Deduction for Dependents. If the taxpayer claims an individual as a dependent on his or her return, the dependent cannot claim a personal exemption on his or her own return.

For example, Mitch and Marion have a dependent child, Willard, who is blind. Willard is a full-time college student and works during the summer. Because Mitch and Marion can claim Willard as an exemption on their return, Willard cannot claim a personal exemption on his own return.

A taxpayer may claim an individual as a dependent if the individual meets all of the following requirements:

9 The taxpayer provides at least half of an

individual's support;

The individual's gross income does not exceed

$2,000, or he or she is under 19 years of age, or if he or

she is over 19 and under 24 and is a full-time student.

(Beginning in 1989 you may not claim a dependent

exemption for a child who is 24 years old by the end

of 1989 and had an income over $2,000, even though

the child was a full-time student. Previously there

was no age or income limit if the child was a full-time

student. Taxpayers affected by this change may want

to consider adjusting their withholding by filing a

new Form W-4 with their employer).

The individual lives in the taxpayer's household;

The individual is a U.S. citizen during some part of

the tax year in question;

9 The individual does not file a joint income tax

return on his or her own.

The amount of a dependent's standard deduction will differ depending on his or her income. The deduction allowed is the greater of $500 or the dependent's earned income.

For example, Willard is single and is claimed as a dependent on his parents' tax return. He has an earned income of $3,000 and is blind. His standard deduction is $3,000 because the greater of $500 or his earned income is $3,000. However, because he is blind, his standard deduction could be as much as $3,750, providing his income was equal to this amount. If his income was $5,000, his deduction would still be $3,850, the maximum allowable deduction for a single, 65 or older or blind individual.

Educational Savings Bonds. Beginning January 1, 1989 there is an exclusion from gross income for interest earned on U.S. Savings Bonds if proceeds from the bond are used by a taxpayer or his dependent to pay for tuition and required fees for attendance at an eligible educational institution, such as a two or four-year college or vocational school.

Employment Programs. Adults with disabilities receiving welfare or public assistance benefits can participate in certain programs under which special tax treatment occurs. When a person with a disability is paid by a state welfare agency for taking part in a work training program, he or she does not need to include the income in calculating gross income as long as the amount received does not exceed the welfare benefits that would have been received.

Under the Employment Opportunities for Handicapped Individuals Act, adults with disabilities can be employed in community service activities and need not include (in gross income) the wages, the allowances or the reimbursements (for attendant care, transportation, and other services that enable the person to work) paid to them under the act.

Individuals with disabilities who are employed can deduct expenses that are "impairment-related" such as attendant care or other services at the place of employment (paid for by the individual taxpayer) that enable the individual to work. To utilize this deduction requires filing Form 2106 and entering the amount calculated on that form onto the 1040 tax return form.

Business Tax Incentives. There are two tax incentives for businesses related to people with disabilities. First, a business may deduct up to $35,000 of the cost of removing architectural or transportation barriers. Second, tax credits are available for hiring a so-called targeted group including certain people with disabilities, such as those referred by vocational rehabilitation programs and Supplemental Security Income (SSI) recipients. For more information on targeted jobs credit, see Publication 572, "General Business Credit."

Additional information about tax credits and deductions can be obtained by calling the District Internal Revenue Services offices at 1-800-424-1040. Also, the IRS issues a number of free publications relevant to persons with disabilities:

o #1 7: Your Federal Income Tax

9 502: Medical and Dental Expenses

503: Child and Dependent Care

o #526: Income Tax Deductions for Contributions

907: Tax Information for Handicapped and

Disabled Individuals

#933: Major Tax Law Changes Enacted in 1988.

To order these publications call, 1-800-424-FORM.
COPYRIGHT 1989 EP Global Communications, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:includes list of itemized medical deductions
Author:Melecio, Maritza; Kerman, Candace M.
Publication:The Exceptional Parent
Date:Nov 1, 1989
Previous Article:Success & happiness: a goal for all children.
Next Article:Was placement the right decision?

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