Introduction
to deducting medical expenses for taxes
sponsored by
the Stepnowski Law Offices
Throughout
the year, and before April 15 rolls around,
you should keep track of your medical and
special education expenses as you go along
. While this page is geared to those
with children with neurological impairments,
it does provide an overall description of
the general tax treatment. Did you know that
treatment of neurological impairments (that
your health insurer did not pay because they
were "educational") can be tax-deductible
medical expenses?
Your
situation may differ, and if you have any
questions, consult a tax professional
with print-outs of the links below since he
or she may not be familiar with everything a
family with large medical needs has to go
through.
Meeting the
threshold and how it affects tax savings
Unfortunately,
the Federal government severely restricts
the medical deduction to the amount
exceeding 7.5% of your income. Thus,
deducting works only for those who itemize
deductions. (Most people with a mortgage
should itemize since the interest, real
estate tax and state income tax deductions
carry you above the "Standard Deduction"
threshold.) The key here is meeting
both thresholds--until your medical expenses
exceed 7.5% of your adjusted gross income,
you cannot include any medical expenses in
your deductions.
- Example 1:
a family with an income of $50,000 and
therapy bills of $12,000 (plus the rest of
the family's medical, conference,
orthodonia, eyeglasses and other expenses
of $2,000) for a total medical expense of
$14,000. Since 7.5% of $50,000 is
$3,750, the family can include
$11,250 more deductions. At a tax
rate of 15%, the tax savings are
$1,687.50.
- Example 2:
same family with $100,000 income.
7.5% of $100,000 is $7,500. The
family can include $6,500 more deductions.
At a tax rate of 28%, the tax savings are
$1,820.
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|
new
|
new
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Example
1 |
Example
2 |
Ex.1-(2013)
|
Ex.2-(2013)
|
| Income |
$50,000 |
$100,000 |
$50,000 |
$100,000 |
@ 7.5 %, threshold
|
3,750 |
7,500 |
5,000
|
10,000
|
| Total Medical Expenses |
$14,000 |
$14,000 |
$14,000
|
$14,000
|
| increased amount to
deductions |
+ 11,250 |
+ 6,500 |
+$9,000
|
+$4,000
|
| tax rate |
15% |
28% |
15%
|
28%
|
| your tax savings |
$1,687.50 |
$1,820.00 |
$1,350.00
|
$1,120.00
|
Note for 2017 and 2018:
The new tax law has restored the
threshold back to 7.5%. These means more
medical expenses can be deducted compared to
2013 through 2016. In 2019, the
threshold may increase to 10% again.
This increase may have some families pay all
2018 expenses before December 31, 2018, and
even prepay some 2019 expenses to "bunch"
the total expenses eligible for the
deduction.
Note for
2013: the Obama tax law increased
taxes on families with members with medical
needs. (You read that correctly.)
For expenses incurred after January
1, 2013, families will not be able to deduct
as much on their taxes. The new
columns on the right (2013) show that the
amount of tax savings will be reduced
compared to the the columns on the left
(2012), by several hundred dollars.
Because the Internal Revenue Code
severely limits the deductions of
medical bills, especially in 2013, you may
want to pay these expenses through a Health
Savings Account (HSA). This type of
plan may be offered by your employer when
paired with a high deductible policy.
The advantage is that the expenses are paid
at pretax income. The
details are in IRS publication 969, but
contact your employer's human resource
department to see if this plan is offered.
Do not
rely on this article as advice. Other
exclusions may apply, such as Alternate
Minimum Tax and upper income restrictions.
What can be
deducted
Medical expenses
are the costs of diagnosis, cure,
mitigation, treatment, or prevention of
disease, and the costs for treatments
affecting any part or function of the body.
They include the costs of equipment,
supplies, and diagnostic devices needed for
these purposes. They also include dental
expenses.
Medical care
expenses must be primarily to alleviate or
prevent a physical or mental defect or
illness. They do not include expenses that
are merely beneficial to general health,
such as vitamins or a vacation.
The details are discussed in the next pages.
New:
IRS
issues guidance on deducting personal care
items as medical expenses
The IRS deems
"medical care" expenses as the amounts paid
for the diagnosis, cure, mitigation,
treatment, or prevention of disease, or for
the purpose of affecting a structure or
function of the body. Medical care expenses
are limited to expenses paid primarily for the
prevention or alleviation of a physical or
mental defect or illness.
An
expense which is merely beneficial to general
health is a personal expense and not
deductible. A question often arises when
an item can be both. The IRS will look
to these factors to determine whether a
dual-purpose item (i.e., one that could be
used for personal as well as medical reasons)
is primarily for medical care, including:
- the
motivation or purpose for making the
expenditure,
- whether a
physician has recommended the item to
treat or mitigate a diagnosed medical
condition,
- linkage
between the treatment and the condition,
- proximity
in time to the condition’s onset or
recurrence,
- and most
importantly, the expense would not have
been paid "but for" the disease or
illness.
See the OTC letter.
Conferences
may also be deducted if they qualify.
This clarification
should help families with children with
disabilities.
Dietary items and other
personal items.
Other Tax
Credits are available
Because of
your child's disability, you may qualify for
other credits, including
- Illinois
education credits
- Dependent
Care Credits
- Earned
Income Credits
For more
information about tax credits, see the next
page by click ing link below.
To see the
detail of the laws and regulations, click
here:
Relevant IRS Revenue
Rulings and publications.
- "Medical expenses; tuition
or tutoring fees. If recommended
by the doctor, amounts paid for the
child's tutoring by a teacher
specially trained and qualified to
deal with severe learning disabilities
may also be deducted. "
- Therapy and patterning
exercises
- Legal fees.
In the next article,
we discuss tax credits.
IRS
Circular 230 Disclosure: United States
Treasury Regulations provide that a
taxpayer may rely only on formal written
advice meeting specific requirements to
avoid federal tax penalties. Any tax
advice in the text of this page, does not
meet those requirements and, accordingly,
is not intended or written to be used, and
cannot be used, by any recipient to avoid
any penalties that may be imposed upon
such recipient by the Internal Revenue
Service.
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2018 Frank E. Stepnowski
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Us:
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telephone: (708) 848-3663, 848-3662
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Frank Stepnowski
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