A big surprise may lie ahead for seniors who itemize medical expense deductions on their federal tax return beginning on January 1, 2017.
One of the provisions included in the Affordable Care Act legislation passed by Congress in 2010 raised the floor for medical expenses that could be taken as itemized deductions from a threshold which exceeded 7.5% to a new threshold of 10% of Adjusted Gross Income (AGI). However this increased floor was delayed for seniors – those age 65 and older – until tax years beginning after December 31, 2016.
This change may merit your immediate review and estimate of anticipated upcoming medical expenses. The new higher floor may mean a sharp reduction in itemized deductions for some seniors. Or it could mean some seniors may be unable to meet the higher threshold and thus lose their itemized deductions for medical expenses beginning next year. It may also prompt you to schedule additional medical appointments or incur some expenses in 2016 in order to address immediate issues.
Deductible medical expenses, according to the IRS, are unreimbursed payments for the diagnosis, mitigation, treatment or prevention of disease; for the purpose of affecting the body’s structure or function; the costs of nursing services, related insurance payments; and transportation expenses.
Here is a partial listing of common medical expenses which are eligible for deduction. (A more comprehensive listing can be found in Publication 502 Medical and Dental Expenses, from the IRS website.)
- Diagnostic tests aiding in the detection of disease;
- Payments to providers of medical services;
- Prescription drugs and insulin;
- Nursing services;
- Dental treatment;
- Eyeglasses and contact lenses;
- Eye surgery to correct defective vision;
- Health insurance, vision insurance and dental insurance premiums;
- A portion of premiums paid for long term care insurance (subject to limitations);
- Medicare premiums;
- Qualified long term care services; and
- Capital improvement expenses made to the taxpayer’s home to accommodate special needs.
Taxpayers who may fall short of meeting the new threshold in 2017 may wish to:
- Consider accelerating some discretionary or elective medical treatment into 2016;
- Take care of any unpaid medical or dental bills before year end 2016; or
- Consider ‘bunching’ more significant medical expenses in future years in order to meet the higher threshold. ‘Bunching’ expenses means planning to schedule more discretionary check-ups or elective expenses into one year, while scaling back the amount of similar expenses planned for the following year.
If this change impacts you, take control. It’s your money so we encourage you to review your anticipated upcoming expenses and projected tax levels to determine whether you should accelerate some medical expenses into 2016.
Have questions about how to determine your anticipated expenses and estimate your future taxes? Give us a call. We’re always here to help.
Image credit: Parker Knight