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Medical Tax Deduction on the Chopping Block in GOP Tax Bill

Published November 30, 2017 by Brady Cobin Law Group, PLLC

The seriously ill, disabled and seniors are all threatened by a proposal that’s part of the tax reform bill that was recently released.

The medical tax deduction is under fire, included in the tax reform bill presented by House Republicans. This would have devastating economic consequences for seniors, people suffering from chronic conditions and the disabled, who have been able to get a tax deduction for qualifying medical and dental expenses, when they exceed 10% of the household’s adjusted gross income.

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.

Many opponents believe that the biggest cost from eliminating the medical expense deduction is going to be a dramatically expanded reliance on Medicaid, which might create an even bigger problem for an already strained resource.

Reference: Time (November 3, 2017) “An Important Tax Deduction for Seniors and Their Families Is on the Chopping Block.”

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