This article is another in City National’s ongoing explanations of the Tax Cuts and Jobs Act of 2017 (the “New Act”). The 2017 Act modifies the rules under the Internal Revenue Code of 1986 as amended (the “Old Code”).
In this article, we explain the changes with regard to the medical expense deduction. The medical expense deduction is intended to assist taxpayers with large medical expenses.
Under the Old Code
Previously, taxpayers who itemized deductions were permitted to deduct from their adjusted gross income (“AGI”) out-of-pocket medical expenses over 10% of their AGI. This included expenses paid for diagnosis, cure, mitigation, treatment and prevention for the taxpayer, taxpayer’s spouse and/or dependents. Itemized deductions are reported on Schedule A and transferred to line 38 of the taxpayer’s Form 1040.
Under the New Act
The New Act retains the deduction for medical expenses but changes the floor from 10% to 7.5%. Deductions may not include funeral, burial expenses, over-the-counter medicines not required to be prescribed and most cosmetic surgeries. Medical expenses includable in the itemized deductions must be paid during the tax year but must be reduced by any reimbursement paid either to the taxpayer or directly to the doctor, hospital or medical provider on behalf of the taxpayer. Persons who are self-employed may be eligible to make an adjustment to income (rather than taking the deduction as an itemized deduction) for premiums paid on insurance policies covering medical care and qualified long-term care which covers medical for the taxpayer, their spouse and/or dependents.
Taxpayers with large medical expenses should consult with their tax advisors about the changes to the medical expense deduction in light of the New Act.
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