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How the New Health Care Law Affects Medical Expense Deductions

How the new health care law affects medical expense deductions in 2013

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?

Photo credit: phalinn via photopin cc

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About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.

8 comments
Jim in Michigan
Jim in Michigan

"Consider these possible medical deductions," after-tax insurance premiums include medical, dental and (up to a certain maximum amount) long-term care insurance.

rock and a hard place
rock and a hard place

I am married living apart and qualify as head of household (finally!) for 2013. Spouse is over 65, but I'm not. Is there word on whether I can fit in as exception to 10% threshold for 2013?

SuzannLauer
SuzannLauer

I remember reading about this a few years ago with raising the % from 7.5 to 10.  This really angers me because of the cost of medical care and there will be less taxpayers able to use this deduction, let alone the carry over to your state return.  The ones that are able to itemize are the ones who are so in debt with their mortgage interest and etc.  And I know that I will not be able to itemize for 2013 and that also means that it will not carry over to my state return.  What does that mean, it means that I will get a smaller refund on my federal and state.  And that goes for everyone else...

SteveI46
SteveI46

This is a very easy to understand post.  Thank you.  I only can hope our DC antagonists will begin using this method of communication in their e-mails and on TV!!

katiebird
katiebird

Will you be providing software to assist customers in estimating next years MAGI income when they enroll in the Exchanges this fall? 

That seems like a daunting task for many of us.

SuzannLauer
SuzannLauer

@rock and a hard place As the rules states, if you do not live with your spouse for the last 6 months of the year (and not divorced) you can file as single or head of household.  And with that being said, you mentioned that you will be filing head of household, no you will not qualify for the 7.5% threshold for medical expenses.  BTW; congratulations and good luck! 

Bob G
Bob G

@SuzannLauerThis is why we call it Obamadontcare. He planned it from the start to make medical treatment impossible for anyone except the very rich.

Martin CPA
Martin CPA

@Bob G @SuzannLauer Give me a break! He planned it from the start? Do you think the Republicans care about the middle class? or the conservatives? Or any politician in this country?  At least there are SOME protections for those who have pre-existing conditions or children. Don't be so partisan and negative. It doesn't help the country as a whole or yourself.