(CBS Marketwatch): The new GOP tax bill has the medical expense deduction — which largely benefits older Americans and those with a disability or chronic condition — squarely in its cross hairs.
Currently, individuals with large out-of-pocket medical expenses can report the figure as a tax deduction.
But if the tax bill passes, the medical expense deduction will come to an end after this year — part of what the proposal calls a “simplification and reform of deductions,” which also includes repealing other deductions.
To take the deduction, a person’s medical expenses, or those of their family, have to be very high, or more than 10% of adjusted gross income for non-seniors, and they must itemize those costs, which many people don’t do. Those expenses can include a wide range of medical fees and health insurance premiums.
Still, for a minority of people, the effect could be financially significant. More than nine million Americans itemized a total of nearly $90 billion in medical expenses on 2015 tax returns, according to the Internal Revenue Service.
The Republican tax bill does increase the standard deduction significantly, approximately doubling it from the current level, which its authors said allows people to “immediately keep more of their paychecks — instead of having to rely on a myriad of provisions that many will never use and others may use only once in their lifetime.”
That means individuals that had been filing itemized deductions below the level of the proposed standard deductions ($12,000 for individual filers and $24,000 for joint filers) likely won’t be affected, tax experts said. Families with children will also likely benefit from a larger child tax credit, said Nirupama Rao, an assistant professor at the University of Michigan’s Ross School of Business.
But for those in the opposite scenario — whose total personal exemptions and itemized deductions exceed the proposed standard deductions — the change could potentially raise their tax bill, and it could also hurt people with a low-enough adjusted gross income that their medical expenses make up more than 10% of it, Rao said.
The deduction was intended for “expenses that one generally doesn’t have the option to not incur. If you are very sick or your kid is very sick you have to pay to treat and that expense makes you less able to contribute the pot of revenues that pays for government services,” Rao said. Not many people use it because it’s intended for very high expenses, she said, “but for those who use it, it can provide important relief.”
“Now, if your kid needs treatment that costs you $40,000, the government isn’t sharing that risk with you,” she said.
Ending the deduction would save about $144.4 billion over the next decade, according to a Department of Treasury estimate, which ranks it among the items raising the most revenue in the tax bill.