Key Facts On Deducting Medical Expenses
Medical expenses can run up your expenses a lot. For that reason, the new tax law gives people a break by sweetening the long-time tax deduction for health care, at least for a couple of years.
Before the Tax Cuts and Jobs Act (TCJA), you could deduct medical expenses that exceeded 10% of your adjusted gross income (AGI). For the tax years of 2017 and 2018, the TCJA lowered the threshold to 7.5%. AGI is taxable income minus all deductions, IRA contributions and student loan interest. Of course, the medical tax break is available only to people who itemize.
The trouble is the more generous deduction expires after 2018, when the threshold rises back to 10%. Groups like AARP are lobbying in Washington to get the 7.5% level extended or made permanent, and that could factor into your timing and decisions about medical expenses in the months ahead.
Say your AGI is $45,000 and you rack up $5,475 in medical costs. You multiply $45,000 by 0.075 (7.5 percent) to get your deduction threshold of $3,375. Only medical expenses above $3,375 would be deductible. Result: your medical expense deduction is $2,100 ($5,475 minus $3,375).
Some big-ticket items are deductible medical expenses, like long-term care insurance premiums, nursing home payments and Medicare costs - including Medicare Part B, Medigap policies, Medicare Advantage programs and Part D Prescription plans.
In addition, any health insurance you pay out of pocket can be deducted. But that can't include coverage you pay for with before-tax dollars, which is often the case with employer-sponsored medical plans.
Another big deductible item is co-payments for prescription drugs - and also out-of-pocket fees for doctors, dentists, physical therapists and other health-care professionals not covered by Medicare or any other health insurance. Add in prescription eyeglasses, hearings aids and wheelchairs, and transportation costs to and from medical appointments, as well as alcohol and drug treatment programs.
Medical expenses are deductible only if they alleviate or prevent a physical or mental defect or illness, including dental and vision. So, you cannot deduct a gym membership if it is to promote your general wellness. However, if a doctor diagnoses you with a specific medical condition, such as obesity or hypertension, then the expense of the prescribed treatment may indeed be tax-deductible, including a gym membership.
This article was written by a veteran financial journalist. While these are sources we believe to be reliable, the information is not intended to be used as financial or tax advice without consulting a professional about your personal situation.
© 2022 Advisor Products Inc. All Rights Reserved.
- Reduce Your Widow's Tax Bill Materially Annually
- Ten Things About 10-Year U.S. Stock Market Performance
- Qualifying For The New Business Owner Tax Break
- Your Alma Mater Or Your Family?
- This Is Not Your Parents' Interest Rate Cycle
- If Family Is Wealth, Then Planning Is Immortality
- Life Is Fragile, So, Please, Value Each Day As Priceless
- Everything You've Learned About Interest Rates May Be Wrong
- This First Year Under The New Law Requires Planning
- 10 Years After The Great Recession
- Commodities Stink But Serve A Purpose
- Inflation: A Portfolio Risk That Never Dies
- The Interest Rate Inflection Point And Your Portfolio
- New Ways To Influence The Next Generation
- Giving More To Loved Ones - Tax-Free