- Financially Better for Clients. This maybe counterintuitive, but paying out of pocket for many healthcare services has been shown to actually be the same or less expensive. The average number of sessions I see clients in a year is 21. Here’s the math: 21 Sessions x $159/session = $3339. That’s a big chunk of money. But…whatever is not reimbursable to you by insurance is often tax deductible. Most healthcare expenses can also be paid directly with an HSA or FSA. Additionally, more and more families are choosing high deductible, lower fee plans. Pay $5000 deductible and then insurance kicks in. That’s after you’ve paid your $833/month.
- Less Complication. It takes longer to verify insurance, verify their plan covers my services and ensure they can be seen It is a fact that every document or form that needs to be sent to insurance is an opportunity for them to avoid financial responsibility. I’ve had dozens of situations where my office manager would send in a form and the insurance company would first claim they never got it. We’d resend it. Then they claimed it was not completed correctly. Resend after corrections. Then they would claim it was incomplete. This game can last up to a year (I’m still getting payments from insurance claims filed over a year ago).
- Clinical Decisions are Not Driven By Insurance. I’ve had way too many instances where an insurance company told me or the family that the client ‘no longer met criteria for services.’ What? How the heck would they know that? It’s based on the number of sessions they allot, the diagnosis I gave and how much money has been spent. At no time does insurance actually review my notes, talk to the client or family or inquire about the clinical status. No thanks – I don’t want insurance professionals making decisions for my clients. And just in case you were thinking it, I’m not a right-wing, libertarian nut job. This is actually my progressive, liberal side coming out advocating for my clients against huge companies whose sole business model is to take in as much money as possible and avoid contractual obligations.
- Flexibity. No insurance company has ever liked hearing that I’m on-call for clients and use texting, video chat, etc. to continue treatment and support between sessions. They also are not fans of me working with parents in a consulting manner. They don’t want to hear that I provide insider knowledge of treatment programs. None of this fits within their narrow definition of what a counselor should do. I do what is necessary to create stability and promote a healthier life.
- Protection. Until there are safeguards that protect clients from being blacklisted for a preexisting condition (ACA is currently under attack from the Trump administration for this) I’d prefer not be forced by insurance companies to diagnose a client. For me to get payment, I have to provide client’s name, diagnosis code, CPT code (what service I provided), my license information, and my NPI (national identifier for healthcare professionals). If I fail to provide any of that, the claim with be denied. In my opinion, there is no reason why a company needs evidence that a client has a diagnosible condition. I totally understand requiring all the other information but diagnosis is unnecessary. At times, a diagnosis is important for the client or family to hear and understand.
Most people see a psychotherapist/counselor for the mental benefits of having someone to talk to about anxiety, depression, relationship issues or substance abuse. Insurance companies have increasingly become difficult to work with and will often dictate types of treatment, how many sessions are allowable. They also dictate when someone is well enough to not need treatment. More and more students I work with at Indiana University are paying out of pocket for mental health services because of the hassles of dealing with insurance. Same is true for parents with whom I consult for therapeutic placement. Private pay, while seemingly more expensive on the front-end, turns out to often be comperable to using insurance.
What many people do not realize is that seeing a therapist or paying for residential treatment out of pocket can often be covered through out of network benefits and also might also provide tax deductions. To start the conversation, I put together a quick overview of what, if anything, can be deducted from your taxes.
Read on to learn when and what could be deductible. This may get more complicated if you consider using a health savings plan or flexible spending account to pay for services. Let’s get started…
1. Find those Qualifying Expenses
Only medical expenses that are for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body” are considered qualifying expenses. Your son or daughter’s therapist appointments are deductible as a medical expense, according to IRS Publication 502, but only to the extent it is for medical care. You can also include the cost of therapist appointments for your spouse or your dependents, if applicable.
Below is a partial list directly from the IRS site (I took the liberty of underlining some of the more relevant items):
- Air conditioner necessary for relief from allergies or other respiratory problems (less any increase in the value of your home resulting from installation of air conditioning)
- Alcoholism treatment, including inpatient treatment, meals and lodging at a therapeutic center for alcohol addiction
- Artificial limbs
- Artificial teeth
- Birth control pills prescribed by a doctor
- Braille books and magazines used by a visually-impaired person
- A clarinet and lessons to treat the improper alignment of a child’s upper and lower teeth
- Contact lenses, including equipment and materials for using contacts
- Cosmetic surgery, if it’s necessary to improve a deformity related to a congenital abnormality, accident or disease
- Diet, special. When prescribed by a doctor, you can deduct the extra cost of purchasing special food to alleviate a specific medical condition
- Doctor or physician expenses
- Drug addiction treatment, including in-patient treatment, meals and lodging at a therapeutic center for drug addiction
- Elastic hosiery to treat blood circulation problems
- Exercise program if a doctor has recommended it as treatment for a specific condition
- Extra rent or utilities for a larger apartment required in order to provide space for a nurse/attendant
- Eye surgery, such as Lasik or a similar procedure, when it is not for cosmetic purposes only
- Guide dog or other animal used by a visually-impaired, hearing-impaired or otherwise physically disabled person
- Hospital care
- Household help for nursing care services only
- Insurance premiums for medical care coverage
- Laboratory fees
- Lead-based paint removal, including the cost of removing lead-based paints from surfaces when a child has lead poisoning or was previously diagnosed with lead poisoning. (Does not include the cost of repainting.)
- Legal fees paid to authorize treatment for mental illness
- Lifetime care advance payments
- Lodging expenses while away from home to receive medical care in a hospital or medical facility
- Long-term care insurance and long-term care expenses (there are limitations to what you can deduct)
- Mattresses and boards bought specifically to alleviate an arthritic condition
- Medical aids, including wheelchairs, hearing aids and batteries, eyeglasses, contact lenses, crutches, braces and guide dogs (and their care)
- Medical conference admission costs and travel expenses for a chronically ill person or a parent of a chronically ill child to learn about new medical treatments. (But not the cost of meals and lodging while attending the conference)
- Medicines and drugs
- Nursing care
- Nursing home expenses, including the entire cost of medical care, plus meals and lodging if the main reason for being in the home is to obtain medical care
- Oxygen and oxygen equipment
- Reclining chair bought on a doctor’s advice by a person with a cardiac condition
- Special education; tuition for sending a mentally impaired or physically disabled person to a special school that has resources to relieve the disability
- Smoking cessation programs (does not have to be recommended by a physician)
- Swimming (the cost of therapeutic swimming prescribed by a physician)
- Telephone (the cost and repair of special telephone equipment for a hearing-impaired person)
- Television (the cost of equipment used to display the audio part of a TV program for hearing-impaired persons)
- Transplant of an organ (but not hair transplants)
- Transportation costs for obtaining medical care
- Travel expenses for parents visiting their child in a special school for children with drug problems, where the visits are part of the medical treatment
- Weight loss program, if it is recommended by a doctor to treat a specific medical condition or to cure any specific ailment or disease
- Whirlpool baths prescribed by a doctor
- Wig for the mental health of a patient who has lost his or her hair due to a disease
- X-ray services
Please also want to ask your tax professional how to also list expenses related to placing and working with therapeutic boarding school, education consultant, therapeutic transportation services, case manager, residential treatment center and inpatient hospitalization for any of your children that you listed as dependents and needed such care.
2. What Counts as Therapy (HINT: Not everything)?
The therapist’s treatment must be related to treating a physical or mental issue. For example, the IRS ruled that marital counseling to improve the marital relationship was not deductible as a medical expense since it was not related to a mental or physical defect (…which is why you should work with your therapist during the intake session to determine if you really need “marriage counseling” or individual counseling where you occasionally bring in your spouse to help with your distress). However, in other rulings, the IRS has held that the cost of psychiatric treatment for sexual inadequacy and incompatibility was closely related enough to a medical or physical defect that those costs could be deducted. This gray area comes up often which is why you should consult your tax professional AND therapist. Other types of therapy or intervention often over looked include:
- Individual and Group Counseling provided at Therapeutic Boarding School, Hospital or Residential Treatment Center
- Intake Sessions
- Psychiatrist visits/consults
- Psychological testing
- Therapeutic transportation service
- Case manager or education consultant
- Parenting assessment
- Drug testing
4. Medical Deduction Limitations
Just because a therapist’s appointment qualifies as a medical expense doesn’t mean you will actually be able get credit for it on your tax return. In 2012, you could only deduct medical expenses that exceed 7.5 % of your adjusted gross income. For future years, the floor goes up to 10 %. For example, if your AGI is $51,000, using the 10 percent floor, you’re only able to deduct your medical costs that exceed $5,100. Unless you’ve got a very expensive therapist, you’re probably going to need some other medical expenses to be able to take any deduction.
5. Itemizing Required
If you take the standard deduction, you are out of luck. You must itemize your taxes in order to claim your therapist sessions (and any associated costs). If you can only deduct a few hundred dollars or so after accounting for the AGI floor, you might not benefit if you give up your standard deduction to itemize. However, if you were already planning to itemize because of other itemized deductions, such as the mortgage interest deduction or charitable contributions, any medical expenses can also be deducted without further cost.
Don’t rely on this blog post for tax decisions. Consult your tax professional.
Before we dive into understanding the options for paying for a Therapeutic Boarding School, let’s quickly review what they are.
The Rise of Therapeutic Boarding Schools
As public schools across the country have slowly been pruned back by state legislatures, funding for behavioral, emotional and academic support within schools have nearly dried up while public money is increasingly being used for private charter schools. Therefore, it’s not surprising private institutions that offer therapeutic (or quasi-therapeutic) environments like boarding schools and private schools have exploded. One of the fastest growing kinds of boarding schools is what’s called a Therapeutic Boarding School. Therapeutic boarding schools maintain the advantages of traditional boarding schools such as intimate class sizes, individual attention, great academics, developing student self-reliance, and the fun of living with peers in a completely “child-friendly” environment.
Some therapeutic boarding schools specialize in helping teens overcome certain psychological problems such as Attention Deficit Disorder, Bipolar, Asperger’s and even Depression. Others have programs for overcoming substance abuse problems or achieving weight loss. Some specialize in helping students who lack motivation get a fresh start in a nurturing environment. Most have some sort of family or parent involvement piece to ensure a team approach (ie. Weekly family therapy via phone or Skype).
While this all may sound great, there are definitely some risks and downsides (beyond the financial cost) of sending a kiddo off to therapeutic boarding school. I address those issues in great detail in another blog post. For now, let’s revisit the financial aspects…
Expense or Investment?
Parents often find themselves in a desperate situation with a troubled teenager. Their daughter runs away from home again, gets caught with the dealer down the street, crashes another car, and has yet another arrest. Parents become afraid for their teen’s lives as their teen’s risk-taking and lifestyle keeps becoming more extreme as the parents’ ability to set boundaries and expectations seemingly erodes.
It’s hard to think clearly and find solutions at times like this. Therapeutic boarding schools and therapeutic wilderness programs can provide answers, but they come at a price, with some programs running upwards of $50,000 a year.
But cost doesn’t have to be an insurmountable obstacle in getting your teen the help they need. We have helped countless parents in similar situations come up with creative ways to finance therapeutic boarding school, knowing that their child desperately needs an intervention. Therapeutic boarding schools are no longer exclusively the domain of the wealthy.
Top 10 Ways to Pay for Therapeutic Boarding School
Here are 10 ways families just like yours found to finance their teen’s therapeutic program:
1. Hire a Consultant: Say what? More money? Yes, but trust me, this really will have super high ROI. Also referred to as case managers, therapeutic placement consultants or educational consultants, a good one is worth their weight in gold (a bad one is expensive and makes bad treatment recommendations). Make sure they are UNAFFILIATED with any program and have the clinical expertise to help advise and guide your family through the whole process. Some clinical educational consultants that specialize are able to handle this. A great case manager will be able to create a treatment plan, explain the process for getting a comprehensive psychological evaluation, walk with you through the intake process, support you while your teen is in the therapeutic boarding school, and coordinate discharge planning to ensure a seamless transition back to home or college. The last piece is essential – making sure your teen has everything they need to succeed after they return. Great case managers also know how to secure reimbursement from insurance providers for teens that attend therapeutic boarding schools. There are definitely some tricks (eg. Hire a case manager that’s also a licensed professional counselor and much of their work could be paid for by insurance) and inside knowledge necessary to make this happen.
Typical cost: $95 – 350/hr (some charge a flat fee of several thousand).
2. Find the Program’s Financial Aid Officer: The private school or wilderness program should have a financial aid officer who can advise you about how to finance your child’s education. You should ask this person what programs, loans, discounts, or financial aid the school offers. Find out exactly what is included in the tuition and board bills, and if there are additional expenses such as buying uniforms or paying special fees for sports.
Typical Cost: Nothing – programs provide this to try to entice you into signing up. Beware of anything that sounds too good to be true – verify any claims they make about coverage from insurance, student grants/scholarships or loans.
3. Public School Funding: You may qualify for a loan through a kindergarten through 12th grade educational loan program. These loans work the same way as college loans, in that you pay what you can while your child is enrolled in the private school, and pay the rest off later. The terms of some loans let you spread out payments over 10 or 20 years. Your credit history will be a factor in securing a loan. Your school’s financial aid officer should be able to help you find such a loan.
Typical Cost: Your sanity – they will drive you crazy with the bureaucracy and take loads of time during your work day since everything in public school shuts down by 3:30pm.
4. Discounts for Upfront Payment: Some schools offer discounts if you pay by the year, instead of by the month. The average student stays at a therapeutic boarding school for less than two years, and wilderness programs are even shorter. A good therapeutic placement consultant/educational consultant will save you thousands of dollars by negotiating these discounts.
Typical Cost: More money upfront but no other associated costs.
5. Tap 529: Consider using your child’s college fund first. Think of the therapeutic program as a way to get your child back on the right path toward college. Without intervention, she won’t have the grades or motivation to get through college and use her fund.
Typical Cost: Make sure there are no withdrawal penalties for use for therapeutic boarding school.
6. Put it On Plastic: When you enroll your child in these therapeutic programs, there will be upfront expenses such as processing fees and deposits. Some parents borrow these initial payments from credit cards, especially ones that offer “frequent flier” miles. This way their child is immediately enrolled. They use their free mileage for transportation to and from the school.
Typical Cost: Beware of high interest rates if you don’t pay off your balance in full.
7. Angel Investing: Some parents borrow the necessary funds from employers or relatives, and pay them back after securing educational loans or home equity loans.
8. Health Insurance Reimbursement: Your health insurance policy may cover part of the cost of a therapeutic program as a medical expense. When you hire a case manager, they will be able to tell you how to file the paperwork and what you need from the program to ensure a speedy reimbursement.
Typical Cost: Sanity… totally lost if your insurer are jerks that don’t reimburse when and how they should. You are attempting to pull money from their cold, dead hands. Expect a fight.
9. Consult Your CPA: Some expenses for therapeutic schools and wilderness programs can be deducted from your income tax return as medical expenses. If you own your own business, you likely have WAY more creative options for deducting medical expenses.
Typical Cost: $200/hr for a good CPA to walk you through if and how to deduct from taxes.
10. Tap Home Equity: Parents have taken out second mortgages or home equity loans and then deducted their interest payments on their income tax returns.
Typical Cost: Fees, closing costs total 2-6%. It also bumps the timeframe for paying off that home back several years.
11. Public School Funding: We lied – there turns out to be 11 ways to pay for therapeutic boarding school. Is your child enrolled in public special education classes because of problems like attention deficit disorder and learning disabilities? Does your child have an “Individual Education Plan” at a public school? Do you suspect your child has learning problems that the public school cannot address? In certain cases, public school districts have to reimburse parents for private school tuitions. The Supreme Court ruled on June 22, 2009, that an Oregon school district had to reimburse a family for private school costs because the child in question could not achieve a free and appropriate education within the district. The child had not been enrolled in special education classes but was diagnosed later with attention deficit disorder.
When it comes to what matters most parents are unstoppable in finding ways to get the services and support they need. Don’t let cost be the determining factor. If your teen needs help, speak with a case manager, your trusted CPA as well as a therapeutic boarding school you’re considering and work together to find a way to get your teen back on track.
Since we talk so often with programs and professionals about how wealth impacts lives, we thought it would be interesting to discuss how some of the wealthy got their money. For some of you, this may dispel some myths (eg. “The rich inherit their money and don’t appreciate wealth!”).
For the most accurate reporting of wealth (…and really, we mean income), let’s look at the IRS which produces data reports for the top 400 tax returns with the highest adjusted gross income. Unfortunately, the latest report is for 2009. Ancient history to us but the IRS considers this up to date.
In 2009 it took $77.4 million in adjusted gross income to make the top 400. That might sound like a lot, but it’s down from $109.7 million in 2008 and significantly down from a record high of $138.8 million in 2007 (…can you say bubble?).
It took $77.4 million to get you onto the list, though; the average earnings were $202.4 million, a lot of money but well down from the $334.8 million average in 2007.
Boring stuff maybe, but here is where it gets interesting – How the top 400 made their money:
- Wages and salaries: 8.6%
- Interest: 6.6%
- Dividends: 13%
- Partnerships and corporations: 19.9%
- Capital gains: 45.8%
The top 400 averaged $92.6 million in capital gains income –16% of the total capital gains reported by all taxpayers. (Do the math and the whole 1% thing seems like an overestimate.)
- Working for a salary won’t make you rich.
- Neither will making only safe “income” investments.
- Neither will investing only in large companies.
- Owning a business or businesses, whether in part or partnership, could not only build a solid wealth foundation but could someday…
- Generate a huge financial windfall (selling a company, taking it public, etc).
The data clearly supports the last point. A total of over 3,800 taxpayers have made the top 400 since 1992, but only 27% appear more than once, and only 2% appear 10 or more times.
The cost of drug and alcohol rehab can be high, and if you opt for a high-end addiction treatment center or therapeutic wilderness program to ensure that you have access to everything you or your loved one needs during recovery, you can end up with a massive bill. Health insurance may cover part of the costs, and you can always get financing to cover the rest, but when it comes to tax time, how can you recoup the costs?
As of right now, there are ways to claim the cost of drug and alcohol rehab on your tax return – as long as you itemize your deductions on Schedule A. In fact, any medical and dental cost is deductible in the same way, as long as it exceeds more than 7.5 percent of your adjusted gross income for the year. For example, if your adjusted gross income is $50,000, you can deduct the expenses that exceed $3750. So if your treatment costs $10,000, then you can deduct $6250.
So which addiction treatment costs are included as acceptable medical expenses that can be deducted? According to §213(d)(1)(A) of the Tax Code, medical costs are defined as “the diagnosis, cure, mitigation, treatment, or prevention of disease.” (For the full list of deductible treatments, interventions, etc. go to the Tax Code link above)
Ok, not a lot of guidance in there. The only other directives point out that illegal treatments or operations are not tax deductible and that a few services are definitely included. Some of the ones that relate to drug addiction treatment include x-rays, hospital and nursing services – pretty much any diagnostic, evaluation, and treatment services. If you are enrolled in a drug detox program or a drug addiction treatment program and incur costs for psychological treatment or medical treatment – even an ambulance ride somewhere in the process of healing and getting better – then your costs are covered under the circumstances described above.
Does drug and alcohol addiction qualify as a medical and/ or psychological disease according to the IRS? Absolutely. Even if the general public is split on the question, the medical establishment and the IRS are not. They agree that costs incurred in the treatment of drug addiction is absolutely a medical expense and as such qualifies as a deduction for those who itemize and whose expenses exceed 7.5 percent of their income.
If you would like assistance filing your taxes in a year that you pay for drug and alcohol rehab, tax accountants like this one can help. If you are seeking a drug rehab for yourself or your loved one, Fonthill can help.
There is a little-known secret for parents planning to send their children to college in the future: Some of the tax-saving moves you make now could hurt your student’s chances for getting financial aid later.
The way the financial aid system treats different assets could have a dramatic impact on how you save. Retirement plans and IRAs don’t count for college aid purposes. You’re not expected to break into these accounts to pay for tuition.
The college aid formula requires 20 percent of the assets in your child’s name to be used for college costs. But the government –mandated formula only expects about 5.6 percent of the money in the parent’s name to be spent. So you’re better off keeping accounts in your own name, especially during the last two years of high school, which is generally when you’ll be asked to start providing tax returns.
Don’t assume you’re not eligible for assistance. With the high cost of college today, many schools now have programs available to relatively well-off families if they meet certain qualifications. For example, your child might be able to get a “merit award” based on high standardized test scores and superior grades.
If you expect to apply for financial aid, don’t hold back placing money in your own retirement plan in order to put away savings in a college account in your child’s name.
Contributions to retirement accounts are usually tax-deductible and the earnings are tax deferred until withdrawn. On top of these tax breaks, your family may also become eligible for more financial aid.
TIP: If you own your own business and your tax professional endorses it, consider hiring your college-aged child and offering a company-wide benefit of college money. What you do for one employee you must do for all so definitely work closely with you tax pro on this one.
Remember – You can usually tap retirement accounts for college money. Many 401(k) plans allow loans to be taken. And thanks to a tax law that went into effect in 1998, you can generally withdraw a limited amount from your IRAs penalty-free to pay higher education costs for yourself, your children and grandchildren.
Talk with your CPA or tax professional to develop a long term plan that’s right for your family, your retirement planning and your college-aged child.