![]() Second, the ACA raised the threshold over which medical expenses can be deducted, from 7.5 percent to 10 percent of adjusted gross income, which took effect in 2013 for those younger than 65 and in 2016 for those 65 or older. First, the ACA removed most limits on coverage and thus protected the insured from most catastrophic health care costs. 7 That number declined to 8.8 million in 2015 8-the most recent year for which data are available- due to two specific reasons. Prior to the enactment of the ACA, in 2009, about 10 million households claimed the medical expense deduction. The medical expense deduction, while not needed by many, is critical to some middle-income families Among high-income taxpayers who itemize, a smaller share takes the medical expense deduction but the average amount claimed is much higher. ![]() Yet, for filers in these income ranges, the average deduction tends to be larger for the medical expense deduction than the amount claimed for other itemized deductions. 6 In 2014, 9 percent of itemizing filers in the latter range claimed the deduction. 5 But the medical expense deduction is claimed by a larger share of itemizing tax filers at income ranges below $200,000, with the largest share claimed by those in the $50,000 to $100,000 annual income range. ![]() Most other itemized deductions are claimed by a larger share of itemizing tax filers at higher income levels. The medical expense deduction, unlike other itemized deductions, is claimed most often by middle-income families For middle-income families who find themselves in these kinds of health care situations, eliminating the deduction is like hitting these families when they are down. 4 These costs are largely out of the taxpayer’s control and can undermine their ability to pay taxes. While many more health costs are covered due to the enactment of the Affordable Care Act (ACA), situations still exist in which families may be required to cover significant out-of-pocket costs, such as when a life-threatening diagnosis requires out-of-network specialty care or when an aging spouse requires long-term care-scenarios that may not be covered under Medicare or private insurance. Similarly, the medical expense deduction recognizes that unexpected high medical expenses can affect a person’s or family’s ability to pay. 3 For this reason, the tax code is progressive, requiring those who have higher income to pay a larger share of their income in taxes. The medical expense deduction, while imperfect, is consistent with the principle of taxation based on ability to payįrom the inception of the individual income tax, policymakers have agreed that the tax system should account for an individual’s ability to pay. If this deduction is eliminated, many families with very high medical bills would also face higher tax bills. 2 Currently, individuals can claim an itemized deduction for medical expenses that exceed 10 percent of their income. The tax bill introduced recently by House Republicans follows a similar approach, eliminating most itemized deductions.Īmong the itemized deductions that would be eliminated under these tax plans is the deduction for medical expenses not compensated for by insurance. 1 To partially offset the cost of the proposed tax cuts, their plan would eliminate all itemized deductions except for the mortgage interest deduction and the charitable deduction. In their unified framework tax plan released in September, President Donald Trump and congressional Republican leaders proposed substantial tax cuts, nearly 80 percent of which will benefit the top 1 percent of taxpayers when fully implemented.
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