Health care costs are getting higher and higher. Even so, many individuals and families who could take advantage of the tax law’s medical expense deduction don’t.
Surpassing the Floor
The Tax Cuts and Jobs Act of 2017 lowered the threshold for the deduction of medical and dental expense. The new law permits taxpayers to deduct unreimbursed medical expenses that are in excess of 7.5% of their adjusted gross income (AGI), down from 10% previously. This change, unlike others, was made retroactive to January 1, 2017. To be deductible, the expenses may not be reimbursed by insurance or elsewhere. For example, a family with AGI of $60,000 would have to spend more than $4,500 on unreimbursed medical expenses to qualify for any deduction. That floor rate may seem high, but with the increases in medical costs in recent years, expenses can add up quickly. Many families have no, or little, coverage for vision care or dental care. And an unexpected illness or accident can lead to thousands of dollars of unreimbursed expenses.
Only out-of-pocket costs can be deducted, that is, expenses not paid for by insurance or an employer. And expenses that are paid with money from tax-advantaged accounts (such as health savings accounts or flexible spending accounts) are not deductible either. Nor are any health insurance premiums automatically drawn from your paycheck on a pretax basis.
Nonetheless, the list of medical expenses that can qualify for the deduction is quite long. Doctors’ bills, tooth repairs, eyeglasses and contact lenses, hearing aids, laboratory fees, oxygen, psychiatric care, stop-smoking programs, surgery, and X-ray costs, for example, can all qualify. In addition, the expenses of dependent family members can also qualify for deduction.
Don’t sweat tax season! When we prepare your tax return you can be confident that and your taxes will be prepared accurately and filed on time, every time. Call us now at 505-200-0094 or request your complimentary consultation online to get started.