OBJECTIVES: This study examined the extent of functional impairment in children and adolescents aged 5 to 17 years with depression based on 2005-2006 Medical Expenditure Panel Survey (MEPS) data. METHODS: This study involved retrospective cross-sectional analysis of 2005-2006 MEPS data involving children. Functional impairment was ascertained using the mean summated scores (range 0-52) of the parent-reported Columbia Impairment scale (CIS). Psychometric properties of the CIS were evaluated for the study sample. The Wilson and Cleary Model was used to examine the factors associated with functional impairment in children and adolescents. The primary independent variable of interest was depression. Multivariate linear regression involving the SURVEYREG procedure was applied to the study sample to identify the predictors of functional impairment in children and adolescents. RESULTS: Analysis of the CIS revealed that Cronbach's alpha of the parent-reported CIS was 0.90 with item-to-total correlations ranging from 0.51 to 0.77. The mean summated CIS score of children and adolescents with depression (CIS, 19.88) was higher than those without depression (CIS, 6.09). Multivariate linear regression revealed that the interaction between age and depression was significant and therefore stratified regression analysis was performed by age. In both age groups, the diagnosis of depression was strongly associated with functional impairment (+7 units in ages 5-11 years, +11 units in ages 12-17 years). The presence of developmental, respiratory tract, attention deficit, and anxiety disorders also increased functional impairment in children and adolescents. Family factors such as parents' psychiatric illness, their highest education level and family living arrangement further contributed to impairment in children. CONCLUSIONS: Functional impairment is significant in pediatric depression and understanding of personal and family factors can play an important role in the assessment, management and treatment of depression.