The new federal tax law preserves the ability of millions of Americans with high medical expenses to deduct those costs from their returns. For the next two years, all taxpayers can write off health care spending that exceeds 7.5 percent of their income.
The fate of this critical deduction had been uncertain during the congressional debate, as the House of Representatives’ Republican tax proposal eliminated it. The Senate GOP measure maintained the benefit, but at the 10 percent of income threshold, while restoring the lower 7.5 percent threshold for two years. AARP strongly urged congressional leaders to keep the deduction and restore the lower threshold.
Nearly 9 million Americans deducted medical expenses in 2015, and nearly three-quarters of those taxpayers were older than 50, according to an analysis by the AARP Public Policy Institute. Of filers who used this deduction, 70 percent had incomes under $75,000, with 49 percent earning less than $50,000 a year. The deduction is particularly important to Medicare beneficiaries, who, AARP estimates, spend on average $5,680 each year on health expenses that Medicare doesn’t cover.
In order to claim this deduction, filers must itemize their taxes. The provision of the Tax Cuts and Job Act that doubles the standard deduction — to $12,000 for individuals and $24,000 for joint filers — could significantly change the number of taxpayers who itemize, experts say.
“We’ve estimated that about 30 percent itemized in 2017, and we think that’s going to go down to about the 10 percent range going forward,” says Mark Mazur, director of the nonpartisan Tax Policy Center and an assistant secretary for tax policy in the Treasury Department under President Obama.
Mazur, however, suggested that individuals should “run the numbers” rather than assume they do or don’t qualify for this tax benefit. Some people, he says, will likely be surprised that they can take this deduction.
Under the new law, the 7.5 percent medical deduction threshold will be in place only for the 2017 and 2018 tax years. After that, the threshold reverts back to 10 percent of income. AARP will be urging Congress to act to maintain it at 7.5 percent.
You may be surprised at some of the medical costs that are deductible. Here’s a look at what is and isn’t eligible.
Eligible expenses include:
- Out-of-pocket fees to doctors, dentists, chiropractors, psychiatrists, psychologists, podiatrists and other medical professionals that are not covered by Medicare or other health insurance
- Health insurance premiums — as long as they weren’t paid with pretax dollars, as most employer-based health benefits are. You can deduct Medicare Part B premiums and any premiums you pay for a Medigap policy, Medicare Advantage plan or a Part D Prescription drug plan.
- Premiums for long-term care insurance and payments to nursing homes and other long-term care facilities
- Inpatient alcohol and drug treatment programs
- Wheelchair ramps and other modifications you make to your home for medical reasons
- Transportation to and from doctor and other medical appointments — including taxi or bus fares, or out-of-pocket costs for using your personal car, including parking.
- Copays for prescription drugs
- Copays for physical or occupational therapists
- Payments for dentures, prescription eyeglasses or readers, hearing aids, crutches, wheelchairs or other durable medical equipment
- Payments for smoking-cessation programs and weight-loss programs related to a specific disease diagnosed by a doctor, including obesity
You cannot deduct the cost of:
- Over-the-counter medicines
- Toothpaste, mouthwash or other toiletries
- Elective cosmetic surgery
- Gym membership
- Nutritional supplements
- Nicotine patches or gum
- Teeth whitening
You can find a comprehensive list of what is and isn’t deductible on the IRS website. The IRS also has an Interactive Tax Assistant tool page that can help you determine if your medical expenses are deductible.
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