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Tax Bill Provision Would Clobber Seniors

Loss of medical expense deduction would mean huge tax increase for some older Americans

Loss of medical expense deduction would mean huge tax increase for older Americans.

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Under current tax law, people who spend more than 10 percent of their income on medical expenses can deduct the remainder of their out-of-pocket health spending.

En español | Suzanne and Harry Hollack thought they had planned responsibly for their retirement. Harry had worked all his life, and they had a good nest egg in their savings and 401(k) account. 

Then Harry, who is 73, was diagnosed with dementia. His condition became so bad that last year he had to go to a memory care facility near their home in Scottsdale, Ariz., care that costs $80,000 a year.

So much for their savings. 

When Suzanne, 70, heard that Congress is considering eliminating their ability to deduct the nearly $100,000 it costs for Harry’s care and their share of Medicare from their income taxes, she couldn’t believe it. 

“We’re not wealthy people,” Suzanne said. To pay for her husband’s treatment they’ve had to withdraw twice as much from their retirement savings as they had planned. 

“That’s bad enough,” she said. “But to have this benefit go away is maddening. I want to have enough money to pay for my retirement years and my husband’s care. We try to do what’s right and pay our own way. I don’t want to have to rely on the government.” 

Michael Amoruso, president-elect of the National Academy of Elder Law Attorneys, said the Hollacks’ situation is a familiar one. “The loss of this deduction would be absolutely devastating to seniors and those with disabilities,” he said. For those who — like the Hollacks — want to use their savings for their care, the loss of the deduction would mean they would run out of money sooner and find themselves on Medicaid, the state and federal program that pays health care and long-term expenses for people with low incomes. 

Under current tax law, people who spend more than 10 percent of their income on medical expenses can deduct the remainder of their out-of-pocket health spending. The deduction can include health care premiums, deductibles and copays, medical transportation costs, and expenses like the Hollacks’ bill for Harry’s memory care facility. 

In 2015, about 8.8 million Americans used the medical expense deduction, which totaled nearly $87 billion. Of those who used the deduction, nearly 70 percent had annual incomes below $75,000 and more than half had a member of their household who is over 65 years old, according to an analysis of IRS data by AARP’s Public Policy Institute. The average medical expense tax deduction in 2014 was $9,958, the data show. 

Amoruso said he’s also concerned about the impact the loss of this deduction would have on extended families. “If they weren’t able to use that deduction, it could encourage caregiver children to stop contributing to their parents’ care,” he said. 

A coalition of advocacy, health care and civil rights groups organized by AARP has sent a letter to all members of Congress urging them to protect the medical expense deduction. “We urge Congress to restore the medical expense deduction and continue to support millions of middle class Americans with high health care costs,” the letter says. 

Repeal of the deduction was included in the House Republican tax measure, which is being debated by the Ways and Means Committee. An amendment to preserve the deduction — and reduce the spending threshold from 10 percent to 7.5 percent of the taxpayer's income — was rejected by the committee in a party-line vote. Senate Republicans could release their version of the tax bill as early as this week. 

Suzanne has written her senators and House member, urging them to preserve this deduction. 

“This is not only impacting me, but a large number of seniors paying out-of-pocket for high medical costs,” she said. “It’s not until something like this hits you, until you realize how much you have to pay. At least the deduction helps a little.” 

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