In Revenue Procedure 2008-48, the IRS has announced some new rules that apply to parents who support children that they cannot (or do not) claim as dependents, but still provide medical care or insurance to them.

Traditionally, the IRS position has been that if you cannot claim the dependency exemption for a child (because they don’t live with you, often), you cannot claim deductions for medical expenses that you pay for the child. Many colleges and businesses used this rule when considering how their benefits apply.

The new rule changes this. A noncustodial parent can now claim payment for medical expenses. Furthermore, they can also include the dependent on company health plans and use funds from an MSA or HSA to pay for medical expenses for the noncustodial child. Furthermore, this ruling is retroactive.

What does that mean for you?
1. If you pay child support, consider making some of the payments specifically for medical services
2. If you have a company or college health plan that prevented you from covering a child in the past, talk to your HR department about this change.
3. Review your taxes for 2005, 2006 and 2007. If you paid any medical expenses for noncustodial children in those years, you can still amend them and get a refund.

Categories: Tax News and Tips
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