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Annual income tax guide.


No one ever said filling out tax returns was easy But having a child with a disability can make the process more complicated.

If you are a new parent, there is no doubt you have a lot of questions: Is my son's physical therapy tax deductible? What about that special baby food our doctor prescribed? This article can help you "make head or tail" of the difficult process of filing your tax returns.


You can best avoid tax time panic by keeping your paperwork organized throughout the year. This includes keeping receipts for doctor bills, prescriptions and any medical supplies your child needed. Don't be tempted to throw them out! Since the IRS processes tax returns by a computer that automatically singles out any taxpayer claiming high deductions, parents of children with disabilities may be likely targets for audits. This makes it especially important for you to keep complete and accurate records. While you do not have to file all your paperwork with your return, keeping good records will make it easier to fill out your return correctly. In addition, you will need this information if you are audited by the IRS.

You may find it helpful to keep a notebook listing all expenses related to your child's disability. Be sure to include: the date of payment; the name and address of the person providing the service; a brief description of the service provided; and the amount paid.

Whether you pay by cash or check, always get a receipt to back up your records. If no formal receipt is available, you can write the pertinent information on a slip of paper, have it signed, and file it with your records.

Remember to keep all cancelled checks, bills and receipts related to deductible expenses. (If you are missing any of these receipts, see if your doctor or pharmacist keeps a copy.) Expenses are deductible in the year in which the payment is made. So if your child had an operation in December 1990, but the hospital bill is paid in January 1991, the expense is deductible on your 1991 return.


The IRS may audit your return for up to seven years after it has been filed - so be sure to keep the last seven years' worth of records in a safe place. The more deductions you claim on your return, the more likely you are to be audited. You can reduce the chance of this happening by attaching to your tax return a letter explaining your child's disability and the deductions you are claiming. You should also enclose a letter from your child's physician explaining the nature of your child's disability and the prescribed care. In addition, list all specialists, therapists, physicians and treatments necessary for your child's health care.


If your child has a disability, you may have significant medical expenses that are not covered by health insurance or other reimbursement programs. Therefore, you may be wondering what exactly constitutes a medical expense and how much of these expenses are deductible on your 1991 tax return.

Any payments made for the diagnosis, treatment or prevention of disease are considered medical expenses. That means the special camp you sent your daughter to this past summer counts if it was prescribed by her doctor. So does that workshop your doctor recommended you attend. Both local and out-of-state transportation costs (including gas, tolls and parking) to receive care are considered part of those medical expenses, as well as food and lodging should you need to bring your child to an out-of-town medical facility. Health insurance payments are also considered a deductible medical expense.

If you are paying medical expenses for a person who would have been claimed as a dependent except for the fact that he or she made $2,050 or more last year (or filed a joint return), you can still include those medical deductions on your tax return. Since the 1986 Tax Reform Act, however, the deduction of these medical and dental expenses are limited to those families whose expenses exceed 7.5 percent of their adjusted gross income. If your family's expenses exceed this limit, you can then deduct the remaining out-of-pocket expenses if they were not already reimbursed by another source, such as health insurance. Don't forget to reduce your medical expenses by the total reimbursements you have received (including payments made directly to doctors and hospitals).


If you are a parent of a child with a disability who has been through the tax filing process many times before, you should be relieved to know the process hasn't changed drastically from last year. Most of the changes made in 1989 still apply, with some minor revisions. The following is a review of the most recent tax laws which affect you as the parent of a child with a disability.

Social Security Numbers. 1989 was the first year which required a social security number for children ages two and over. If your child does not have a number, you can file a Form SS-5 with your local Social Security office. If you do not receive a number in time for the filing deadline, you can write "applied for" on the tax return.

Child Care Reporting Requirements. If you are paying someone to care for your child with a disability, you may be eligible for a tax credit of up to 30 percent of the cost. You can claim a credit for expenses of up to $2,400 for one dependent and up to $4,800 for two or more. If your employer provides child or disabled dependent care, you may under certain circumstances, which depend on how the child care is provided (see IRS publication 503, Child and Dependent Care Expenses, for guidelines), exclude up to $5,000 of the value of this care from your gross income.

If you wish to claim this tax credit or to take the exclusion for employer-provided assistance, you need to get the new IRS Form W-10, Dependent Care Provider's Identification and Certification. You should give one to each of your care providers to fill out and return. If during the year you switched providers, you would have to give a Form W-10 to both of your providers. These forms are available at your local IRS office or may be ordered by calling (800) 424-3676. You may also write for forms at the following addresses:

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

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

If you live 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, write to: Forms Distribution Center, P.O. Box 25866, Richmond, Va. 23289.

If you are a working parent who has received tax credits or exclusions for dependent care or are a dependent care provider, you should be aware of the new reporting requirements which went into effect last year.

Care Provider Information. The Family Support Act of 1988 now requires parents to include specific personal information about their care provider on their federal income tax returns. If you plan to take a credit or an exclusion for the cost of child care, your care provider must give you their taxpayer identification number (TIN). For an individual care provider, the correct TIN is the same as their social security number. For others, the correct TIN is usually the employer identification number. Care providers who willfully refuse to comply with this new requirement may be subject to a $50 penalty for each violation.

It is up to you to include the correct name, address and TIN of your care provider on your own return. If he or she refuses to give you all of the necessary information, you should try to provide as much information as you can and keep records. You can use a copy of a recently printed letterhead or billhead to verify the provider's name and address. If your care provider is an employee (if he or she works for an agency, for example) you can get all the necessary information from a properly prepared W-4, Employees Withholding Allowance Certificate.

Employer Child Care Assistance. If your employer provided child care or disabled dependent care services for your child so that you could work, the amount the employer paid (within certain limits) is not considered part of your income so it is not deductible. (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 your earned income if it is less than $2,500.) Such care must be provided for under an employer's written plan that is available to all employees and meets other qualifications. This provision means that many informal child care arrangements (such as if you pay $50 a week in cash to a friend to babysit," and your friend does not formally report the income) are not deductible.

Some employers may assist in the payment of dependent care (as well as medical care) by withholding a limited amount of money from your regular paycheck before calculating the usual income tax and social security deductions. You would then be reimbursed for dependent care or medical care costs (see Code Section 89). This allows you to pay for these expenses with pre-tax dollars. However, you cannot receive the child care credit if you are receiving this employer assistance because you would be getting the deduction twice.

If you would like further information, call the IRS at (800) TAXFORM and ask for IRS publication 503, Child and Dependent Care.

Earned Income Credit. If you have a child and your adjusted gross earned income is less than $20,264 a year, you may be eligible for an Earned Income Credit (EIC) of up to $953. 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.

To be eligible, you must have earned income during the year from wages, salaries, tips or self-employment. Social Security payments, welfare benefits, or unemployment compensation are not considered earned income.

To take this credit, there are some further conditions you must meet. First, your child must be living with you for more than half the year, and your main home must be in the U.S. In addition, you must either be married and filing a joint return, a qualifying widow(er) with a dependent child, or a head of a household.

If you are not required to file a return because your income is below the minimum for filing, you can still receive the Earned Income Credit if you wish to file for it. If you want, the IRS will figure both your tax and your EIC on Form 1040 or 1040A. You can also receive IRS publication 596, Earned Income Credit, for more information.

Deduction for Dependents. If you claim your son or daughter as a dependent on your tax return, your child cannot claim a personal exemption on his / her own return, even if your child is a full-time student who worked over the summer.

Your child can still claim a standard deduction which will differ depending on his/her income and disability. The deduction allowed is the greater of $500 or the dependent's earned income. The maximum deductible is $3,250. However, if your child has vision impairments, he or she is eligible for an additional $800 deduction.

For example, if your child has vision impairments and earned an income of $3,250 last year, his standard deduction would be $3,250 if you claimed him as a dependent on your tax return. If he only made $200 last year, however, his standard deduction would be $500 (the greater of $500 or the person's earned income). The maximum allowable deduction for a single individual with vision impairments is $4,050. Therefore, even if he earned $5,000 last year, he could still only claim a deduction of $4,050.

You may claim your child as a dependent if he or she meets all of the following requirements:

* You provide at least half of the individual's support;

* The individual's gross income does not exceed $2,050 or he or she is under 19 years old, or if he or she is a full-time student between the ages of 19 and 24. Since 1989, you may no longer claim a dependent exemption for your child if he or she was 24 years old by the end of 1989 and had an income of more than $2,050, even if the child was a full-time student. Previously there was no age limit if your child was a full-time student. If you are affected by this change, you may want to adjust your withholding by filing a new Form W-4 with your employer;

* The individual lives in your household;

* The individual is a U.S. citizen during some part of the tax year in question;

The individual does not file a joint income tax return on his/her own.

Educational Savings Bonds. As of last year, if you or your child uses proceeds from U.S. Savings Bonds 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), you do not have to include the interest earned on those bonds as part of your gross income.

Employment Programs. If you are an adult with a disability and are receiving welfare or public assistance benefits, you can participate in certain programs which would allow you to receive special tax treatment. For example, if you are paid by a state welfare agency for taking part in a work training program, you are not required to include that income when you are calculating gross income - unless the amount you received exceeds the welfare benefit you would have gotten.

You may also deduct expenses that are "impairment-related," such as attendant care or services at the workplace (paid by you) that enable you to work. To claim this deduction you must file Form 2106 and enter the amount calculated on that form onto the 1040 tax return form.

Business Tax Incentives. There are three tax incentives for businesses related to people with disabilities. If you are a business owner, you can deduct up to $35,000 of what it costs to remove an architectural or transportation barrier. In addition, under the recently-passed Revenue Reconciliation Act of 1990, eligible small businesses can receive a credit of up to 50 percent for certain expenditures between $250 and $10,250 for the purpose of improving access for people with disabilities. Expenditures after November 5, 1990, can be applied towards this new tax credit.

Also, you can receive a tax credit for hiring people within a "targeted group," which includes certain people with disabilities, such as those referred by vocational rehabilitation programs and Supplemental Security Income (SSI) recipients. You can get more information on targeted jobs credit from IRS publication 572, General Business Credit.


Now that you are familiar with the tax laws affecting you as the parent of a child with a disability, that stack of papers in front of you should seem a little less intimidating. You should have that tax return stamped, sealed and mailed off in no time ! If you are still confused or have further questions regarding tax credits and deductions, don't worry. You can get more information by calling the District Internal Revenue Services offices at (800) 829-1040. If you get a busy line, be persistent (remember, there are many others like you with questions of their own).

Also, you may find it helpful to send away to the IRS for the following free publications relevant to persons with disabilities:

* #17: Your Federal Income Tax

* #502: Medical and Dental Expenses

* #503: Child and Dependent Care

* #526: Income Tax Deductions for Contributions

* #907: Tax Information for Handicapped and Disabled Individuals

* #933: Major Tax Law Changes Enacted in 1990

You can order these and other tax publications by calling the IRS at (800) TAX-FORM.
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Title Annotation:8th Annual Computer Technology Directory, 1991
Author:DiCiaccio, Nicolas; Reid, Natalie
Publication:The Exceptional Parent
Date:Nov 1, 1990
Previous Article:Educational software resources.
Next Article:Independence Day: Designing Computer Solutions for Individuals with Disability.

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