Tax Strategies for Families Raising Kids with Disabilities

Article
Jan. 19, 2021Updated Oct. 25, 2022

If you’re anything like us, you probably have mixed feelings about tax preparation — you dread having to rummage through drawers to locate all your receipts and paperwork, but you also feel a tinge of excitement about the possibility of a refund. But it doesn’t have to be all bad, especially if you heed the awesome advice of Gina M. Levy, CPA.

Levy began her career at a leading accounting firm and held a variety of accounting management positions in several industries before opening her own tax practice in 2002. The primary focus of her practice is helping families who have children or other family members with disabilities.

In December 2019, Levy wrote this incredibly helpful article, which lays out strategies for preparing your taxes in a way that’s clear and easy to understand. We talked to her to learn what changes have occurred since then and to find out what advice she has for parents.

Deductions

IHSS Tax Considerations

Levy explains that you can use In-Home Supportive Services (IHSS) income to qualify for earned income tax credits if you want, but that most Californians will be getting more than $40,000, which pushes them out of the earned income credit scheme. She notes that it might make sense if you only make about $20,000 from IHSS, as most IHSS providers have secondary sources of income. If you’re an IHSS provider for your child and they live with you, you’ll have to certify with the state that the child lives in the same household. For more on IHSS parent providers and countable income, watch this clip where Undivided's Public Benefits Specialist Lisa Concoff Kronbeck breaks down when IHSS income is not counted:

Financial Planning and Special Needs Trusts

Respite

Levy wants everyone to know that respite hours are not taxable income, and that Regional Centers in California should not be issuing 1099 forms for this: “If they are, you should fight it and not include it in your tax return,” Levy says. Respite hours are a reimbursement of expenses. “You aren’t in the business of caring for your child, so you shouldn’t be paying taxes on that.”

Reimbursement from the School District

If you pay for services out of pocket with the expectation that the school district will reimburse you, you can write them off, Levy says, but she cautions that it gets a bit tricky. “If the district reimburses you in the same year, it’s a non-issue; you don’t deduct if you’ve been reimbursed. But let’s say you paid out of pocket for three years and the district reimburses you in the fourth year for all of it, you would deduct years one, two, and three, and the reimbursement is taxable income in the fourth year.”

Document Everything

If you’re a Regional Center client, Levy recommends making sure your IPP includes everything you do for your child: “If you’re audited and the tax person wonders why you’re claiming a medical deduction for the wobble seat your kid sits on, if it’s stated in the IPP that your child needs a OT seat, then that’s medical. Include everything you’re paying for out of pocket so it’s documented — you want your responsibilities to be clearly defined in the IPP.”

If you’re not with a Regional Center, you’ll still want to document everything. “Make sure to take notes when you have your annual visit with your pediatrician, and give your tax person a copy of your notes to show that you’re working with a medical professional,” Levy advises.

For more, be sure to check out Levy’s full article; though she’s not currently taking new clients, she is happy to help on a case by case basis and may also be able to speak with your tax professional.

Note: The information in this article is educational in nature and is not to be considered tax advice. Please contact a qualified tax professional to discuss how these concepts may or may not apply to your personal situation.
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Contents


Overview

Deductions

IHSS Tax Considerations

Financial Planning and Special Needs Trusts

Respite

Reimbursement from the School District

Document Everything

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