Clients worry the tax legislation could ax Medical Expenses deduction

By elderlaw

Some of our long-time Browning & Meyer clients worry the tax legislation before Congress could become a tax increase. Specifically, they’re concerned with the potential loss of the Medical Expenses deduction on their federal taxes.

As they should be.

oct 2017 newsletterThe impact on senior couples could be huge. Many older couples use the Medical Expenses deduction to help defray the costs of nursing home care for a spouse with a chronic illness. If the deduction goes away, their tax liability could increase by thousands of dollars.

Under the House-passed plan, the Medical Expenses deduction is eliminated. The Senate version – yet to be voted on – remains in flux. So far, it preserves the Medical Expenses deduction. But that is subject to change as Senate Republicans work to get their version of the bill to the same cost level of the House-passed version: $1.7 trillion over the next 10 years.

The House passed its version of the bill, officially called H.R.-1, the Tax Cuts and Jobs Act, Nov. 16.

A Browning & Meyer client who agreed to have us use his situation as an example, dropped us a line just before the House vote:

“Perhaps it is time to sound the alarm regarding the removal of health care cost deductibility for nursing home expenses?” the client asked.

Shortly after the House vote, he followed up with this in another note to Browning & Meyer:

“So I had my Dad’s CPA recalculate my parents’ tax liability based on the House-passed version of the legislation. Amount owed under current law, $3,817. Amount owed under ‘tax reform,’ $20,013. Scary!”

Again, the whole tax cut legislation remains very fluid. Pushed by President Trump, the legislation seeks to drastically cut corporate tax rates – from 35 percent to 20 percent – and provide tax cuts to millions of individuals by increasing standard deductions. But some taxpayers will see an increase.

Until this weekend, the Senate version of the legislation also included a repeal of the Affordable Care Act’s individual mandate. The elimination was projected to save $338 billion. That effort was abandoned due to opposition from Republicans within the Senate. But dropping the idea leaves Senate Republicans in search of other changes that will save an equal amount from their version of the tax bill.

The Kaiser Family Foundation reported about 8.8 million Americans claimed the Medical Expenses deduction on their 2015 taxes. But those 8.8 million tax filers claimed an estimated $87 billion in deductions, meaning that those who do qualify for the deduction have very high out-of-pocket health costs.

AARP heavily lobbied the Senate to not eliminate the Medical Expenses deduction, which AARP studies showed is especially important for middle income seniors. (See embedded video.)

With Congress now adjourned for a long Thanksgiving weekend, and President Trump traveling to Florida for the holiday, not much action on the tax legislation will happen in the next few days.

But the Senate Finance Committee has passed its version of an amended H.B.-1, and the legislation will go to the full Senate floor for a vote as soon as next week.

We will continue to follow the bill for clients of Browning & Meyer Co., LPA and report our findings here.

Below are a few links to informational stories on the legislation and helpful news sites covering the developments in Washington, D.C.