Rather Than Ending Medical Expense Deduction, Final Tax Bill Expands It

by Chambliss, Bahner & Stophel, P.C.
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Chambliss, Bahner & Stophel, P.C.

Included in the new tax bill, signed by President Trump on December 22, is a provision that could provide some temporary relief for families with high medical expenses.

Federal law currently allows families with medical expenses exceeding 10 percent of their adjusted gross incomes to deduct certain medical expenses from their income taxes, provided that they itemize their deductions. For the two months leading up to passage, the entire future of the deduction was in doubt.

The version of the tax bill that the House of Representatives passed November 16, 2017, would have scrapped the deduction altogether, prompting an outcry from disability rights advocates.  The Senate version, however, maintained the deduction. The final version, in fact, expands the number of families eligible for the deduction, at least temporarily.

For the current 2017 tax year and 2018, all families whose medical expenses exceed 7.5 percent of their adjusted gross income will have the option of deducting certain medical expenses. The threshold will, however, revert back to 10 percent for the 2019 tax year.

This 7.5 percent benchmark mirrors regulations that existed prior to the Affordable Care Act (ACA), which had raised it to 10 percent for non-elderly families. For the elderly, the 7.5 percent threshold expired in 2016 and also rose to 10 percent.

According to the IRS, 8.8 million households, or almost 6 percent of tax filers, claimed medical deductions in 2015.

Even with the expanded medical expense deduction, many families with high medical expenses could see increased financial burdens from the tax bill.  The bill eliminates the ACA’s requirement that people purchase health insurance, likely threatening the future of the ACA’s exchanges and sparking increased medical premiums. It also slashes the corporate tax rate from 35 to 21 percent and will cost the government an estimated $1.5 trillion in revenue over the next 10 years, increasing the likelihood of future cuts to Medicaid, Medicare and other major pieces of the social safety net.

“Each vote in favor of this bill was a vote against constituents with disabilities and sets the wheels in motion to quite possibly go back in time to an era when people with disabilities had little opportunity to live a life of their choosing, in the community,” The Arc, which protects the human rights of people with intellectual and developmental disabilities, said in a statement.

To read the text of the final bill, he Tax Cuts and Jobs Act, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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