For 2013, new rules enacted under the Patient Protection and Affordable Care Act of 2010 may affect how much you can deduct for medical expenses – or if you can take a medical expense deduction at all.
Higher “floor” before you can start taking medical expense deductions
Prior to 2013, you could only deduct medical expenses to the extent that your total medical expenses exceeded 7.5% of your adjusted gross income – your taxable income before itemized deductions and exemptions.
This amount you must exceed before you take a deduction is known as a “floor.”
The medical expense floor for most people in 2013 is now 10%. That means your total medical expenses must exceed 10% of your adjusted gross income before you take any deduction for them.
For example, say your adjusted gross income (AGI) is $50,000.
$50,000 AGI X 10% = $5,000, so your medical expense floor is $5,000. If you have $6,000 in qualified medical expenses, you can only deduct $1,000 ($6,000 expense – 5,000 floor = $1,000 deductible expense).
Exception for taxpayers age 65 and older
If you have reached age 65, the new floor percentage doesn’t apply to you. You can still deduct total medical expenses that exceed 7.5% of your adjusted gross income.
If you are married and only one of you is age 65 or older, you can still use the lower 7.5% floor for your medical expenses. You are age 65 or older if you turn 65 during the year or in any previous year.
This exception is temporary. After 2016, everyone must meet the 10% floor for medical expenses before they can take a deduction.
Is it even worth it to save medical receipts?
Even with a 10% floor, it’s entirely possible that your total medical expenses may exceed the floor and qualify you for a deduction.
At the beginning of the year, when you start paying for a few office visits, it may be tempting to not bother keeping track of your expenses.
However, if a major medical event occurs late in the year, you’ll wish you had saved every receipt and counted every medical mile.
Consider these possible medical deductions:
- Prescriptions (but not over-the-counter medicine, except insulin).
- After-tax insurance premium payments (not premiums that reduced your taxable income already).
- Costs for diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment that affects a function of your body, for which you were not reimbursed.
- Lab services, including blood tests, x-rays, MRIs, and so on.
- Travel and transportation for medical care, at 24 cents per mile. If you travel 20 miles round-trip to the doctor, for example, you can deduct $4.80, plus any parking or toll fees you paid. You also have the option of using your actual costs for gas and oil for medical transportation. If you have a major medical event that requires multiple trips, or travel to a facility farther from home, these expenses add up.
- Disability accommodations. If you improve your home to accommodate a disabled person, you may be able to deduct everything from grab bars to wheelchair ramps.
- Long-term care expenses. If you or a dependent receives care in a facility primarily for medical care, the entire cost is deductible – even the portion that covers meals and lodging. It shouldn’t take long in one of these facilities to meet and exceed your 10% or 7.5% floor for the year.
Do you expect your out-of-pocket medical expenses to be higher or lower next year?