House Republicans have proposed the elimination of the medical tax deduction. That provision lets people write off qualifying medical and dental expenses that exceed 10% of their adjusted gross income (AGI). Currently, individuals can deduct their own expenses and those of their tax dependents. This includes aging parents who live with the individual and meet other criteria.
Time’s recent article, “An Important Tax Deduction for Seniors and Their Families Is on the Chopping Block,” notes that about 6% of tax filers take advantage of this deduction. They include people with expensive care needs, like seniors in nursing homes, people with chronic medical conditions and parents of disabled children.
Those who support the bill believe it would put more money into middle-class pockets because of a proposed increase in the standard deduction for individuals and married couples, rising to $12,000 and $24,000, respectively. However, that increase won’t offset the loss of the medical expense deduction for those who claim it.
Here’s an example of how the deduction works: a single senior with $40,000 AGI has medical expenses of $6,000 annually. That’s more than 10% of her income, so $2,000, wouldn’t be subject to tax. If her taxable income places her in the 15% bracket, she’d lose out on $300 of federal income tax savings.
In addition, people who use the deduction to pay for long-term care costs may forfeit much more. For example, a woman in her mid-80s who pays, on her own, the $11,000 monthly cost of her assisted living facility can afford to do this by selling highly appreciated stock and using the medical expense tax deduction to eliminate any taxes she’d otherwise owe. An increase in the standard deduction wouldn’t help her, because it wouldn’t be as much as her savings under the medical expense deduction. She would also have a higher tax burden along with her substantial care costs. If the medical deduction went away, this lady would go through her money quickly and possibly need Medicaid. Medicaid pays the long-term care costs of people who have exhausted their income and meet other criteria.
Some believe that the elimination of the medical expense deduction would ultimately increase costs for this government program.
Reference: Time (November 3, 2017) “An Important Tax Deduction for Seniors and Their Families Is on the Chopping Block”