Medical Expense Deduction Tax Relief Is Big Win For Seniors In Year

Medical Expense Deduction Tax Relief Is Big Win For Seniors In Year-
End Spending Package
By Ashlea Ebeling Senior Contributor of Forbes – 22Dec2020
There’s finally certainty around the medical expense deduction for 2021 and beyond.
Got high medical expenses in a low-income year? Congress heard your plea. As part of
the $1.4 trillion spending bill Congress passed yesterday, millions of Americans will get
a permanent break on the deductibility of out-of-pocket medical expenses. The
threshold for claiming the medical expense deduction was set to climb to 10% for 2021,
but the new legislation lowers the threshold to 7.5%—permanently—a win for
Americans with high health care costs, especially seniors. The bill is expected to be
signed into law by year-end.
It was senior organizations like the AARP who pushed for the permanent fix, but it’s not
just retirees who are good candidates for the tax break. It also helps the unemployed,
the underemployed and even working folks with employer coverage who are paying
ever more in high out-of-pocket medical costs.
Here’s how it works. You report medical expenses on Schedule A (itemized deductions)
of your 1040 federal income tax return and get a deduction to the extent they exceed
7.5% of your adjusted gross income. You have to have enough other itemized
deductions (home mortgage interest, charitable deductions, real estate taxes) to beat
taking the standard deduction. Say your AGI is $50,000 and you have $4,875 of out-ofpocket
expenses. The 7.5% hurdle is $3,750, which would leave $1,125 in deductions,
reducing your tax bill.
The medical expense deduction hurdle—or floor—was set at 7.5% back in 1986, then
raised to 10% under the Affordable Care Act. Seniors got a reprieve. Then under the
Tax Cuts and Jobs Act the hurdle was temporarily brought back down to 7.5% for
everyone, and Congress has been extending it at that level annually on a temporary

asis through 2020. The permanent change now takes the medical expense deduction
off the list of temporary year-end tax extenders and provides certainty for taxpayers of
all ages.
What counts as expenses to beat the hurdle? Think broadly: acupuncture to X-rays.
Eligible expenses include premiums for Medicare Part B and Part D as well as
supplemental insurance. Internal Revenue Service Publication 502 has a complete list.
You can claim expenses paid for yourself, your spouse and your dependents. Travel
costs—mileage, tolls and parking—to and from the doctor’s office count too.
Even if you don’t have enough expenses to claim the deduction on your federal return, it
can carry over onto your state return and save you state income taxes. So hold onto all
those receipts.