Well, in Canada, the answer would be simple. The Canadian government considers dyslexia to be a disability, thus allowing taxpayers an annual tax credit under the “Disability Tax Credit Eligibility for Canadians with Dyslexia”.
The answer in the United States, is different and not so straight-forward. Dyslexia is not considered a disability for tax purposes. Therefore, parents of children with dyslexia do not qualify for “The Elderly and Disabled Tax Credit.” Rather, dyslexia is considered to be a medical condition with related expenditures potentially deductible as medical expenses. Sounds easy enough, right? Not quite, although eligible to be claimed as a medical deduction merely paying the expenditure is not sufficient enough to claim the deduction.
Itemized Deductions (“Schedule A”) - Medical Deductions
Many of you may be familiar with certain itemized deductions, such as state taxes, mortgage interest and charitable donations, however, the medical expense deduction might be new to you. Eligible medical expenditures are allowed to be claimed as a deduction, however, only the amount in excess of the “7.5%-of-Adjusted Gross Income (AGI)” threshold” for 2018 (10% starting 2019) becomes the actual medical deduction in determining your taxable income. If you just said, “Whoa! What a mouthful, can’t we just claim a credit instead?” you wouldn’t be alone with that sentiment. Due to the “7.5%-of-AGI” threshold, claiming medical expenses as a deduction needs to be viewed on a case-by-case basis. But before we talk about why, let us first define eligible medical expenditures with respect to a condition, such as, dyslexia.
Eligible medical expenses are any costs incurred in the prevention or treatment of injury, disease, or in the case of dyslexia, learning disabilities. Medical expenses include health and dental insurance premiums (unless paid through a pre-tax plan), doctors and hospital visits, co-pays and prescription drugs to name just a few. Generally, medical expenses do not include school tuition and related costs. That is, unless, the child has dyslexia, and then expenditures include items such as school tuition, transportation, lodging and meals, professional consultations, evaluations and other forms of mental health treatment.
To increase chance of success if challenged by the IRS, your doctor should recommend that special treatments, including schooling, is needed to treat the learning disability. Additionally, the primary reason your child is attending the specific school is for medical care and not because the school addresses behavior problems that might not qualify as learning disabilities.
So, you have paid (i.e. in “cash”, by credit card, or through a loan) for eligible medical expenditures, this entitles you to claim a medical deduction on your tax return, correct? Not quite, as mentioned above, this is just the first step, the second (and more difficult) step, is to have eligible medical expenses that in total exceed “7.5%-of-AGI” (your income less certain other non-itemized deductions)
As AGI differs among taxpayers, so too does the calculated threshold for determining the medical deduction amount that will be included as an itemized deduction. Additionally, due to new tax reform changes affecting itemized deductions, such as, capping the state tax deduction, and elimination of certain other itemized deductions, it might be more tax advantageous to claim the new higher standard deduction in calculating your taxable income. However, by not itemizing your deductions, you no longer are eligible for a Federal medical deduction, and similarity a deduction on your Massachusetts state tax return.
Ok, but what about prior years??
Good news, prior years are potentially not lost. If you paid for medical expenditures related to your child’s medical condition and did not claim (when you could have) a medical deduction in prior years you might be able to file an amended tax return to correct your mistake. Just like in the current year, a case-by-case analysis needs to be done when going back to a prior year, to determine if amending a return will in fact provide you with a greater tax benefit.
For more information on the above subject matter (or to discuss your specific tax situation) please contact the author of this article directly at:
Adam M. Domow CPA
Adam M. Domow has more than 17 years of experience as a CPA. Adam empowers his clients to reach their financial goals through a broad range of services that include tax preparation/planning, accounting and bookkeeping, as well as client advisory services.