Taxes: How to deduct your medical expenses

Some retirees are grumbling that young families are getting a better deal under tax reform. But seniors could be overlooking some good news for deductions for medical expenses.

At one point, the heated debate on tax reform called for eliminating the deduction for medical expenses entirely.

But the major tax reform package that Congress passed in late December kept that deduction and put the threshold for claiming medical expenses at 7.5 percent. The threshold is retroactive for 2017 and can be used this year when filing your returns. The same threshold will apply for 2018 returns, too.

Taxpayers are able deduct medical expenses paid only in the same tax year as the return.

Ending the deduction, of course, would have been devastating for seniors and other families facing serious health challenges. Such a move would have hurt seniors who were paying for long-term care not covered by Medicare or private insurance, as well as those with sizable out-of-pocket medical expenses.

“Instead of eliminating the deduction, they improved it for the taxpayer,” said Gil Charney, director of tax law and policy analysis for The Tax Institute at H&R Block.

The improvement is the 7.5 percent threshold.

If nothing changed, taxpayers would have been able to claim nonreimbursed medical expenses that exceeded 10 percent of adjusted gross income on the 2017 return — a tougher hurdle than 7.5 percent.

Claiming the deduction still isn’t easy for many taxpayers. If you have $20,000 in adjusted gross income, for example, you’d need at least $1,500 in qualifying medical expenses during 2017 to hit the threshold. And only expenses after that amount would qualify for a deduction. So, if you had $2,000 in qualifying expenses, you’d be able to claim $500 in deductions.

But here’s another point: You must have enough other deductions, such as charitable contributions, mortgage interest, state and local taxes, to itemize and exceed the standard deduction.

Bernie Kent, chairman of Schechter Investment Advisors in Birmingham, said seniors want to keep that 7.5 percent threshold in mind for their 2017 returns — and as they contemplate any optional surgery or dental work that would lead to high out-of-pocket expenses in 2018.

Tax planning for 2018 could include taking care of big medical issues now — instead of waiting until next year. The lower threshold only applies to 2017 and 2018. Beginning in 2019, the threshold for the deduction for medical expenses will be 10 percent unless Congress moves to change that rule.

For 2018, many new rules out of tax reform will hit.

The standard deduction increases in 2018 to $24,000 for married couples filing a joint return — up from $12,700 in 2017. For singles the standard deduction increases to $12,000 in 2018, up from $6,350 for 2017.

One tip for seniors: Look at the tax form sent out for Social Security benefits, Form SSA1099, to see what the Medicare premium is that’s being deducted from the monthly Social Security check. Here you’d find a deduction to pick up under medical expenses.