- Learn about the Appropriations Act of 2020 and how it will affect you.
- Discover how medical adjusted gross income (AGI) limitations affect your ability to claim medical deductions.
- Find sometimes overlooked deductions that may benefit you!
- Learn whether your health insurance premiums may be deductible.
- Find out if you're eligible for an above-the-line health insurance deduction for self-employed individuals.
If you have expenses that may count as medical deductions, there are things you need to know. On December 20, 2019, President Trump signed into law the Appropriations Act of 2020. This act, which included a number of tax law changes, including extending certain tax provisions that expired after 2017 or were about to expire, a number of retirement and IRA plan modifications, and other changes, will impact a large portion of U.S. taxpayers as a whole. In this blog, Fiducial introduces those changes and how they may affect you.
When can you deduct medical expenses?
Are you looking to claim medical deductions this year? Medical expenses are deductible as an itemized deduction but only to the extent they exceed a percentage of a taxpayer’s adjusted gross income (AGI). For a long time, the percentage was 7.5%. It was raised for under-age-65 taxpayers to 10% for 2013 through 2016. It was lowered back to 7.5% for all taxpayers for years 2017 and 2018. It was scheduled to go back up to 10% starting with tax year 2019. However, with the passage of the Appropriations Act of 2020, Congress reduced that percentage back to 7.5% for tax years 2019 and 2020. This allows more taxpayers to qualify for the medical deduction.
NOTE: Keep in mind that the total of the itemized deductions must exceed the standard deduction. If they do meet the standard deduction, they will not provide a tax break. So, even if your medical deductions exceed the 7.5% floor, this doesn’t mean you will have a tax benefit from them.
Maximize your medical deductions
To help you maximize your medical deductions, the following are some medical expenses, other than those for doctors, dentists, hospitals, and prescriptions, that are sometimes overlooked:
- Adult Diapers
- Birth Control
- Chiropractor Visits
- Drug-Addiction Treatment
- Fertility Enhancement Therapy
- Gender Identity Disorder Treatments
- Guide Dog Expenses
- Health Insurance Premiums* – Including the premiums you pay for coverage for yourself, your dependents, and your spouse, if applicable, for the following types of plans:
o Health Care and Hospitalization Insurance
o Long-Term Care Insurance (but limited based upon age)
o Medicare B
o Medicare C (aka Medicare Advantage Plans)
o Medicare D
o Dental Insurance
o Vision Insurance
o Premiums Paid through a Government Marketplace, Net of the Premium Tax Credit
*However, premiums paid on your or your family’s behalf by your employer aren’t deductible because their cost is not included in your wage income. If you pay premiums for coverage under your employer’s insurance plan through a “cafeteria” plan, those premiums don't count as medical deductions either because they are paid with pre-tax dollars.
- Home Modifications for Disabled Individuals
- Lactation Expenses
- Learning Disability Special Education
- Nursing Home Costs
- Nursing Services (which need not be performed by a nurse)
- Pregnancy Tests
- Smoking-Cessation Programs
This is not an all-inclusive list. Please call Fiducial with questions related to expenses that you think might qualify as a medical expense. We are always here to answer your questions.
Tax tip for the self-employed
As a tax tip, if you are self-employed, you may be able to deduct 100% (no 7.5%-of-AGI reduction) of the cost of medical insurance without itemizing your deductions. This above-the-line deduction is limited to your net profits from self-employment. If you are a partner who performs services in that capacity and the partnership pays health insurance premiums on your behalf, those premiums are treated as guaranteed payments that are deductible by the partnership and included in your gross income. In turn, you may deduct the cost of the premiums as an above-the-line deduction under the rules discussed in this article.
No above-the-line deduction is permitted when the self-employed individual is eligible to participate in a “subsidized” health plan maintained by an employer of the taxpayer, the taxpayer's spouse, any dependent, or any child of the taxpayer who hasn't attained age 27 as of the end of the tax year. This rule is separately applied to plans that provide coverage for long-term care services. So, an individual who is eligible for employer-subsidized health insurance may still deduct long-term care insurance premiums, as long as he or she isn't eligible for employer-subsidized long-term care insurance. For the insurance to be treated as subsidized, 50% or more of the premium must be paid by the employer.
This above-the-line deduction is also available to more-than-2% S corporation shareholders. For purposes of the income limitation, the shareholder’s wages from the S corporation are treated as his or her earned income.
The above-the-line deduction includes the premiums you pay for health coverage for yourself, your dependents, and your spouse, if applicable, for the types of plans listed under “Health Insurance Premiums” above.
If you have any questions related to medical itemized deductions or the self-employed above-the-line deduction for health insurance premiums, Fiducial has the answers! Call us at 1-866-FIDUCIAL or make an appointment at one of our office locations. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!