I wanted to take a second to thank those of you who have offered feedback through my offices and on my recent Facebook post about the Tax Cuts and Jobs Act. As always, the goal of these updates is to ensure I’m looking at an issue from all angles, doing my homework, and taking your concerns into account. One specific aspect of the tax proposal receiving a lot of attention right now is the potential elimination of the medical tax deduction. I’d like to address the details surrounding this deduction below:
What We Know
- Under current law, individuals may only deduct the portion of medical expenses that exceed 10% of their adjusted gross income.
- According to Consumer Reports, of the 30% of Americans currently itemizing their taxes, 19% claim the medical tax deduction – meaning 6% of American taxpayers claim this deduction.
If you’re one of the 6% of Americans who currently claim the medical tax deduction, you would need to compare your current medical expenses against the increased standard deduction under the new proposal ($12,000 for individuals and $24,000 for joint filers) to see how this bill would affect you should it become law.
For example, the average family of four in Northern Nevada has an adjusted gross income of about $64,000. If this family had $7,000 of out-of-pocket medical expenses for the year, they would multiply $64,000 by 0.10 (10%) to find the only medical expenses that could be deducted are those exceeding $6,400, or 10% of their adjusted gross income. This would leave the average family of four in Northern Nevada with a medical expense deduction of $600 ($7,000 - $6,400).
The family in the above example is just one of many families who would fair better under the new tax system due to the increased standard deduction which more than covers their medical expense deductions. The only way it would be a better deal for the average family of four in Northern Nevada to continue claiming this deduction, would be if their annual out-of-pocket medical expenses exceeded $30,400, putting them over the amount that joint filers would be allowed to claim ($24,000) under the new proposal.
Other Facts to Consider
The Affordable Care Act
It’s important to note that most of the information you’re probably seeing fails to take into account the cap on deductibles under the Affordable Care Act (ACA). The 2018 cap for out-of-pocket expenses under the ACA is $7,350 for individuals and $14,700 for families.
We must also consider the number of individuals covered by TRICARE, Medicare, or Medicaid who have varying out-of-pocket expenses depending on their plan and income. For Medicaid expansion and traditional Medicaid enrollees, the out-of-pocket expectation is $0. In Nevada, the second largest insurance group includes those on Medicaid. The first largest is those covered by an employer plan which is subject to the maximum out-of-pocket limits.
The American Health Care Act
In May, the House passed H.R. 1628, the American Health Care Act (AHCA), legislation to fix some of the most broken parts of the ACA. While this bill is currently stalled in the Senate, if it were to become law, the out-of-pocket maximums would remain the same as they are under current law. Additionally, a family’s ability to contribute to a Health Savings Account (HSA) on a tax-free basis would match the out-of-pocket caps so they never have to pay taxes on money used for health care.
I hope this special edition update on medical expense deductions helps address your concerns. Please let me know what you think through my website. Thank you for subscribing to my newsletter, and stay tuned for Friday’s update which will examine the impact on individual and joint filers, small businesses, corporations, and an evaluation of misinformation surrounding itemized deductions.
For additional information, please visit my website at amodei.house.gov or call my Washington office: (202) 225-6155, Reno office: (775) 686-5760 or Elko office: (775) 777-7705. To receive updates on what I am doing in Washington and in Nevada’s 2nd District follow me on Facebook, Twitter, Instagram and Youtube.
