By Ken Berry
It's difficult, if not downright impossible, for some taxpayers to claim medical expense deductions on their federal income tax returns. And no wonder: With a daunting threshold of 7.5 percent of adjusted gross income (AGI) to clear, your clients might not even be inclined to try, especially if most of their costs are covered by an employer's health insurance plan or Medicare.
Now the tough just got tougher. Beginning in 2013 (with returns to be filed in 2014), the bar has been raised to 10 percent of AGI for most taxpayers.
But at least senior citizens may benefit from a temporary reprieve: For taxpayers sixty-five or older, the 7.5 percent of AGI threshold remains in effect through 2016. These changes were included in the massive health care legislation – the Patient Protection and Affordability Care Act (PPACA) – signed into law in 2010 and upheld by the US Supreme Court in 2012.
For example, if a taxpayer age fifty-five with a $100,000 AGI has $9,500 of unreimbursed medical expenses in 2013, he or she can't deduct any expenses. Reason: The total doesn't exceed 10 percent of the taxpayer's AGI, or $10,000. Previously, at the 7.5 percent threshold, this taxpayer could have deducted $2,000 in medical expenses ($9,500 - 7.5 percent of $100,000 = $2,000). On the other hand, a seventy-year-old with an AGI of $50,000 and $5,000 in unreimbursed medical expenses can still deduct $1,250 in 2013 ($5,000 - 7.5 percent of $50,000 = $1,250).
Qualified expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body. This includes health insurance premiums and a portion of premiums paid for long-term care insurance (LTCI) policies. The deductible portion of LTCI premiums is based on the insured's age.
Other commonly deductible expenses include:
- Payments of fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners.
- Payments for inpatient hospital care or nursing home services, including the cost of meals and lodging charged by the hospital or nursing home.
- Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction, for participation in a smoking-cessation program, and for drugs to alleviate nicotine withdrawal that require a prescription.
- Payments to participate in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician (but usually not for health food items or payment of health club dues for one's general health).
- Payments for insulin and prescription drugs.
- Payments for false teeth, reading or prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and guide dogs for the blind or deaf.
- Payments for transportation needed to obtain necessary medical treatment, such as ambulances or fares for taxis, buses, and trains. If the taxpayer uses his or her own vehicle, the taxpayer can deduct the portion of actual costs attributable to medical-based travel or use, at the standard mileage rate for medical purposes. (The 2013 rate is 24 cents per mile, up from 23 cents per mile in 2012.)
But be aware that taxpayers can't deduct payments for over-the-counter medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of one's health, and most cosmetic surgery. Nor can a client deduct the cost of amounts paid for nicotine gum and nicotine patches, which don't require a prescription.
Saving grace: Remember that the 10 percent of AGI limit doesn't take effect until 2013. Therefore, taxpayers of all ages may be able to deduct medical expenses on their 2012 returns based on the 7.5 percent of AGI limit.
Encourage your clients to scour their records to find expenses that might have fallen through the cracks. Despite the obstacles, it's not "impossible" to qualify.