Federal Law Changes that Will Affect Your Tax Return – Part 3

Yesterday and Tuesday I published the first 2 posts of a 3-part series about some of the questions people are asking with respect to recent federal legislation. Specifically, those questions are:

  1. Was Obamacare really declared unconstitutional by the Supreme Court?
  2. Were the required minimum distributions (RMDs) at age 70 ½ from your retirement plan really eliminated?
  3. And how about the threshold for writing off medical expenses–was that also tossed away?

I answered question #1 in Tuesday’s blog post, question #2 in yesterday’s blog post, and will answer question #3 today.

Not everyone knows or understands about the medical expense deduction that can be taken when filing your federal income tax return. Obviously, if you’re in good health and you spent little or no money on medical expenses, it’s not something you would know about. But for people with serious and/or ongoing conditions, and for the self-employed, the costs of medical expenses can be quite high.

The IRS has long allowed individuals who itemize their tax deductions on their federal income tax returns to deduct expenses for medical and dental care for themselves, their spouses, and their dependents. (See the most current IRS Publication 502, or Tax Topic 502 on the IRS website.)

Before the ACA was enacted, the amount of expenses that could be deducted was the total that exceeded 7.5% of the taxpayer’s adjusted gross income. Example:

  • Taxpayer’s AGI was $50,000
  • Total medical and dental expenses paid by the taxpayer for himself and his family during the tax year was $10,000
  • The amount the taxpayer could deduct is $6,250
    • 50,000 x 7.5% threshold = $3,750
    • Deductible amount is the amount OVER $3,750, or $10,000 – $3,750 = $5,250

When the ACA was enacted, the medical expense deduction threshold was increased to 10%, although it didn’t apply to anyone over age 65 until tax year 2017. The Tax Cuts and Jobs Act contained a provision that said the increase in the medical expense deduction threshold would not apply to anyone in tax years 2017 and 2018. This meant the threshold remained at 7.5% for all taxpayers through 12/31/2018.

The recently enacted Taxpayer Certainty and Disaster Relief Act extended the lower 7.5% threshold for medical expense deductions for the 2019 tax year. Clearly, if you don’t itemize on your tax return, this doesn’t affect you. But it does affect many Americans, especially those who are older and have chronic medical conditions.

I hope this series has provided information you can use or pass along. Feel free to reach out to me if there are any other topics you’re interested in learning more about.


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