If they are functioning at the 50th percentile in a lower grade try them in the next grade up to see how they score. For reading, the skill sets stair-step up in difficulty beginning with the fundamentals of reading: Letter Names, Phoneme Segmenting, Letter Sounds, and progressing up to the more difficult skills of Word Reading Fluency, Passage Reading Fluency, and the hardest of all, Multiple Choice Reading Comprehension. They might possibly do better in higher grades of basic reading skills but need to drop down to lower grades on the more difficult skill sets. You are not only trying to determine where their knowledge lies but also their ability to read and understand words and sentences.
For a student not functioning at their grade level, you can assess them at different grades but the goal will always be to get them back on their expected grade level as soon as possible and at the 50th percentile.