With rising health care costs, claiming whatever tax breaks related to health care that you can is more important than ever. But there’s a threshold for deducting medical expenses that may be hard to meet. Fortunately, the Tax Cuts and Jobs Act (TCJA) has temporarily reduced the medical expense deduction threshold.
What Medical Expenses are Eligible?
You may deduct medical expenses if they’re “qualified.” Qualified medical expenses involve the costs of diagnosis, cure, mitigation, treatment or prevention of disease. They also involve the costs for treatments affecting any part or function of the body. Examples include payments to physicians, dentists, and other medical practitioners, as well as equipment, supplies, diagnostic devices and prescription drugs.
You may also deduct the mileage you drive for health-care-related purposes at a rate of 17 cents per mile for 2017. The rate goes to 18 cents per mile for 2018. Health insurance and long-term care insurance premiums can also qualify, with certain limits.
You can’t deduct expenses reimbursed by insurance or paid with funds from a tax-advantaged account. This includes Health Savings Accounts or Flexible Spending Accounts. Likewise, health insurance premiums aren’t deductible if your employer takes them out of your paycheck pretax.
The AGI Threshold
Before 2013, you could claim an itemized deduction for qualified unreimbursed medical expenses paid for you, your spouse and your dependents. You could claim this to the extent those expenses exceeded 7.5% of your adjusted gross income (AGI). AGI includes all of your taxable income items reduced by certain “above-the-line” deductions. These include deductible IRA contributions and student loan interest.
As part of the Affordable Care Act, a higher deduction threshold of 10% of AGI went into effect in 2014 for most taxpayers. It was scheduled to go into effect in 2017 for taxpayers age 65 or older. But under the TCJA, the 7.5%-of-AGI deduction threshold now applies to all taxpayers for 2017 and 2018.
However, this lower threshold is temporary. Beginning January 1, 2019, unless Congress takes additional action, the 10% threshold will apply to all taxpayers. This includes those over age 65.
Consider “Bunching” Expenses into 2018
Because the threshold is scheduled to increase to 10% in 2019, you might benefit from accelerating deductible medical expenses into 2018 to the extent they’re within your control.
However, keep in mind that you have to itemize deductions to deduct medical expenses. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. And with the TCJA’s near doubling of the standard deduction for 2018, many taxpayers who’ve typically itemized may no longer benefit from itemizing.
Contact us if you have questions about what expenses are eligible and whether you can qualify for a deduction on your 2017 tax return. We can also help you determine whether bunching medical expenses into 2018 will likely save you tax.