Budget Deal Would Keep Medical Expense Deduction, Bolster Retirement Savings

Millions of Americans with high medical bills could deduct more of those expenses from their income taxes and more would have access to retirement savings plans under a year-end $1.4 trillion federal spending deal reached by Congress.

As part of the federal budget agreement, which would avoid another government shutdown, the House of Representatives on Tuesday afternoon passed a two-year extension of an income-tax provision that allows taxpayers to deduct a portion of their out-of-pocket health costs once they have spent 7.5 percent of their incomes on these expenses.

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"This is a victory for the approximately 4.4 million Americans with high health care costs who rely on this deduction each year,” Nancy LeaMond, AARP executive vice president and chief advocacy and engagement officer, said in a letter Tuesday to House members. Without this agreement, the threshold for deducting medical expenses when consumers file their 2019 taxes next year would be 10 percent, amounting to a tax increase for millions of Americans. AARP has urged lawmakers to make the 7.5 percent threshold permanent.

The budget package also includes the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which would make several changes to the way people could plan for retirement. For example, it would let small businesses band together to create 401(k) plans they might not otherwise be able to offer their employees. The SECURE Act would also enable more employers to offer retirement benefits to their long-term part-time workers and would raise the age at which people are required to start taking minimum withdrawals from their retirement accounts from 70.5 to 72.

In her letter, LeaMond voiced AARP's support for the SECURE Act's inclusion in the year-end budget deal. The measure had passed overwhelmingly in the House earlier this year but was never voted on in the Senate.

"There are over 27 million part-time workers in the United States, many lacking access to a workplace retirement plan,” LeaMond noted. “The SECURE Act expands their access to retirement savings, which is especially helpful to older individuals and caregivers who want or need to shift from full-time to part-time work."