The Tax Cuts and Jobs Act applies changes to tax law for the tax year 2018, so taxpayers who file taxes in 2019 are required to abide by the new rules. Less than half of taxpayers understand the changes in taxes that the new law generates. One of the biggest concerns for families is how to deduct their health care costs. According to a comprehensive study at CNBC, Americans average spending $9,596 on health care, so income would have to be more than $125,000 to qualify for health care deductions if your medical expenses run $9,596.
Statistics paint a disturbing picture about the ever-escalating costs of health care. The fear of rising costs is complicated by the fear of losing medical deductions under Trump’s tax plan. Middle-class citizens are especially concerned about their ability to deduct medical expenses.
How the New Tax Laws Work
The Tax Cuts and Jobs Act eliminates many deductions while increasing the standard deduction. Many families will receive a tax benefit because of the higher standard deduction, but those with high medical bills could end up shortchanged unless they itemize their expenses.
The new law allows you to deduct out-of-pocket medical expenses that exceed 7.5 percent of your gross income in 2018. The percentage rises to 10 percent in 2019, which is where it was after the passage of Obama’s Affordable Care Act. However, you’ll have to itemize your expenses to claim the deduction, so you won’t get any benefit from the increased standard deduction.
People who are over the age of 65 qualified for the 7.5 percent deductible under Obama, and they will still be able to deduct medical expenses over 7.5 percent of their incomes under the new plan, which reverts to the Obama plan in 2026. Taxpayers who earn $50,000 annually would have a health care deductible of $3,750.
Those who have a good health insurance plan can take advantage of the increased deduction and come out ahead. However, those who have chronic illnesses and high medical expenses should investigate how they’d fare by itemizing deductions.
How to Claim Your Deductions
The most important step is to calculate your tax bill based on claiming all your deductions and comparing the total with your increased standard deduction — $12,000 for individuals and $24,000 for married couples in 2018. In 2019 and until 2026, the standard deduction rises to $12,200 and $24,400.
What Qualifies as a Medical Expense?
Medical expenses need to be documented, and the easiest method is to write down every expense and medical procedure so you can take full advantage of any allowed deductions. You can’t deduct any medical expenses for which you receive reimbursement including employer contributions, Medicare/Medicaid, and insurance payments.
You can deduct unreimbursed expenses for surgeries, office visits, and dental and vision care. Prescription medicines and health appliances — such as contact lenses, glasses, false teeth, hearing aids, and mobility assistance devices — also qualify.
There are also deductions available for services you need to do your job if disabled such as special transportation, communication assistance, and other services. Transportation costs for receiving medical treatments can also be deducted. These expenses must be for you personally, your spouse, or a dependent. You can deduct direct transportation costs and out-of-pocket expenses for gas and oil. However, you can’t deduct for auto depreciation, insurance, and maintenance costs. As an alternative, you can deduct $0.18 per mile in 2018.
In general, the IRS disallows medical deductions for cosmetic services, non-prescription drugs except insulin, health supplements, vitamins, diet foods, and health club dues or gym memberships. However, medically prescribed therapies qualify for deductions. The IRS website states that you cannot deduct burial expenses, toiletries, nicotine gum or patches without a prescription, experimental therapies not approved by the FDA and trips taken for general health improvement such as resting in a dry climate.
The following expenses are allowed:
- Medical Fees: Deductible fees include payments made to surgeons, physicians, psychiatrists, psychologists, chiropractors, dentists, licensed therapists, and nontraditional medical practitioners.
- Specialized Treatments: Deductible treatments include acupuncture, inpatient alcohol and drug treatment, and smoke-cessation programs. Drugs used to relieve withdrawal symptoms are deductible if prescribed by a physician. Weight loss programs designed to treat certain health conditions can qualify for deductions, but not all food or health club dues qualify.
- All Prescription Drugs and Insulin: Drugs prescribed by your doctor or licensed health practitioner qualify for health care deduction.
- Patient Care: Inpatient and outpatient care at medical offices, clinics, hospitals, and nursing homes qualify for deductions. However, the nursing home care must be medically related, or only the portion of the fees that applies directly to medical care is deductible.
- Medical Devices: Payments made for eyeglasses, hearing aids, false teeth, crutches, wheelchairs, guide dogs, and other service animals are deductible.
- Insurance Premiums: Health insurance premiums are deductible except for those paid by your employers. If you have a premium conversion plan, your costs are not deductible unless they’re included as part of your W-2 income.
- Medical Conference: Trips you or a dependent take to a conference on a chronic illness are deductible if they’re necessary to manage care more effectively. Meals and lodging aren’t deductible on these trips — just transportation costs, conference fees, and expenses for medical devices and technologies.
Claiming Your Healthcare Deduction
You will have to file IRS Form 1040 — the long version — and Schedule A to claim medical deductions. You can also include any other authorized deductions on Schedule A. Report your total medical expenses on line 1, and transfer your AGI from line 38 on your Form 1040 on line 2 of Schedule A.
In 2018, you multiply your gross income by 7.5 percent and subtract it from your total medical deductions. If the total of Schedule A deductions is less than the standard deduction, you should take the standard.
If the process of determining deductibility and making the necessary calculations seems too difficult, consulting a tax professional is the best strategy. Tax pros can save you money by finding every eligible deduction with little risk of triggering an audit because of an error.