Thanks to a few Olympia dads, a new IRS ruling will create a tax break for U.S. parents who care for their disabled adult children at home.
Olympia resident Loren Freeman said the ruling means a small but critical boost in financial resources. His daughter, Faith, has Down syndrome and requires 24-hour care. State Medicaid payments cover only a fraction of Faith’s daily living expenses, and the payments have always been treated as taxable income.
According to the January ruling, state payments for “difficulty of care” now qualify as nontaxable income and will be treated the same as foster care payments. The average family like Freeman’s could see $2,000 to $3,000 in tax relief, depending on the amount of state aid received.
“This decision has national impact,” Freeman said. “I think we connected the dots in a way that gave the IRS a solution that could be made to work.”
Frustrated with the system, Freeman and fellow Olympia resident Eugene St. John had spearheaded an effort to reform the tax structure. For nearly two years, St. John and friends pressed the IRS for a solution that assisted families in similar situations.
Last December, they finally received notice that the change was approved. The ruling specifically helps caregivers of a biological relative. Previously, biological caregivers did not quality as foster care providers and therefore were ineligible for the appropriate tax breaks.
The decision serves as a small victory for St. John, a retiree who cares full time for his son, Michael, 27.
Because of his autism, Michael meets all the state standards for institutional care. However, St. John said his son’s quality of life is much better at the family home instead of in a state institution, where the annual cost of care can easily exceed $100,000.
In Washington, an estimated 81,000 people have a developmental disability. A majority live at home with parents or other relatives, and about 23,000 receive state services, according to The Arc of Washington State. Placement of the disabled into personal family homes, rather than an institutional setting, removes a significant financial burden for the state, St. John noted.
“We’re saving the state all this money,” he said, “yet we’re being taxed.”
To save on taxes related to caregiving, St. John had formed a Schedule C business. For several years, he and a few friends with similar life circumstances kept track of every cent spent on care — from food to transportation — and have claimed the costs as business expenses. The process opened his eyes to ways that citizens can legally hide income from the government.
“I just fear for the thousands of people who can’t wade through the system,” St. John said. “It’s such a nightmare.”