While not impossible, taxpayers may find it difficult to receive a tax benefit from unreimbursed medical expenses. Due to the higher threshold and recent changes to tax law, clients often overlook the deductibility of medical expenses. Continue reading this article to find out if you’ve been missing out on tax savings from your medical expenses.
First, let’s start with the basics. The threshold for deductible medical expenses for 2019 is now 10% of adjusted gross income (AGI), up from tax years 2017 and 2018 when the Tax Cuts and Jobs Act modified the percentage to a favorable 7.5%. To put in context, if a taxpayer’s AGI is $100,000 in 2019, they would not receive a tax benefit from medical expenses until qualified medical expenses exceed $10,000. In addition, to receive a medical deduction, taxpayers must itemize which means that their itemized deductions must exceed the standard deduction, $12,200 for single filers, $24,400 for married filers filing jointly and $18,350 for head of household filers. Common itemized deductions include medical expenses, state income tax, property taxes, mortgage and investment interest, and charitable gifts.
Another important factor to keep in mind is who qualifies for a medical expense deduction on your tax return. In addition to deducting qualified medical expenses paid for yourself, your spouse and your dependents, you might be able to deduct expenses incurred for an individual who doesn’t qualify as your dependent. The IRS allows you to claim medical expenses for another individual if:
1) you did not claim your child as a dependent because of the rules for children of divorced or separated parents
2) you did not claim a person as a dependent because they received more than $4,200 of gross income or they filed a joint return
3) you did not claim a person as a dependent because that person could be claimed as a dependent on someone else’s return.
In the case of dependents of divorced or separated parents, a taxpayer can deduct medical expenses paid for their children even if the child is claimed by the other parent.
Taxpayers can also include medical expenses incurred for a person who would have otherwise qualified as their dependent apart from earned income greater than $4,200 in 2019. In order to deduct expenses paid on behalf of this individual, this individual must have lived with you for the entire year, be related to you, be a US citizen or legal resident, and you provided over half of his or her support for the year. For example, you provided over half of your father’s support but cannot claim him as a dependent because he received wages in excess of $4,200. In this scenario, you can deduct the medical expenses paid for your father. If your parent doesn’t live with you but you provide more than half of the support, you can also deduct the medical expenses under the qualifying relative rule.
Finally, if you incur a medical bill for an expense that occurred in a prior year and that individual was your dependent in that tax year, you can deduct the qualified expenses in the current year. The key factor is that the medical services were provided when the individual was your dependent.
For a complete list of qualified medical expenses please refer to IRS Publication 502.
If you would like to know more about deductible medical expenses or need advice on your overall tax planning, please contact your L&B professionals at (858) 558-9200.