Is there a Tax Break for Tuition Paid to Special Schools?

Article Highlights:

• Medical Deduction
• Tuition To Treat Learning Disabilities is Deductible
• Special Teaching Techniques
• Private Letter Rulings

A component of itemized deductions is the cost of medical care. The total of eligible medical expenses paid during the tax year is reduced by 7.5% of the taxpayer’s adjusted gross income (AGI). While you are undoubtedly familiar with most of the medical expenses eligible for the deduction, such as payments for doctor/dentist care, surgeries, prescription drugs and other commonly encountered medical costs, one type of eligible medical expense that you may not be aware of is the cost of a child attending a special school. This type of school is designed to compensate for or overcome a physical or mental handicap, in order to qualify the individual for future normal education or for normal living. This includes a school for the teaching of Braille or lip reading. The principal reason for attending must be the special resources available at the school for alleviating the handicap.

Treating a child at such a school can be financially burdensome to the child’s parents, especially if the care isn’t covered by health insurance. Provided the parents have total itemized deductions greater than their standard deduction, they can get help from the tax law, which allows as eligible medical costs:

• The tuition for ordinary education that is incidental to the special services provided at the school, and
• The cost of meals and lodging supplied by the school The distinguishing characteristic of a special school is the substantive content of its curriculum, which may include some ordinary education, but only if the ordinary education is incidental to the school’s primary purpose of enabling students to compensate for or overcome a handicap.

In a private letter ruling, the IRS said that for a child diagnosed with multiple learning disabilities, tuition paid to attend a school designed to assist students in overcoming their disabilities and developing appropriate social and educational skills was a deductible medical expense.

IRS ruled that where the school uses special teaching techniques to assist its students in overcoming their condition and that these techniques along with the care of other staff professionals are the principal reasons for the child’s enrollment at the school, then the school is a “special school.”  Thus, the child’s tuition expenses at the school in those years he is diagnosed as having a medical condition that handicaps his ability to learn are deductible.

Side Note: Private letter rulings by the IRS are written responses to a taxpayer’s request for guidance on a particular issue or complex situation. A private ruling is applicable only to the specific tax situation, can’t be cited as precedence by other taxpayers and doesn’t commit the IRS to taking a similar position with regard to other taxpayers. However, a ruling does provide a look into the IRS’ position on the matter in question and can sometimes lead to a broader revenue ruling that would apply to all taxpayers. There is a fee, often several thousand dollars, that the taxpayer is required to pay when submitting their request for a private ruling.

The Tax Court has also held and IRS has privately ruled in other situations that, where a school attended by a student with a medical problem doesn’t qualify as a special school because the ordinary education isn’t incidental to the special services provided, the costs of the special program or special treatment (but not the entire tuition) may still be a deductible medical expense.

If you have questions related to this or other medical deductions, please give this office a call.