Health care can be a tricky and personal subject. So can taxes. But did you know that you can benefit from certain health care expenses? The IRS has updated its health care tax benefits for 2020. Read on for that and more.
Changes for the new year
It never hurts to plan for tax and health care benefits. As of January 1, 2019, “you can only deduct the amount of the total unreimbursed allowable medical care expenses for the 2019 tax year that exceeds 10% of your adjusted gross income (AGI).” The limit is up from 7.5% in 2018.
What this means is that if you have an AGI of $50,000, ten percent would be $5,000. You can claim the difference in any spending after you hit that $5,000. If your medical expenses happen to be $7,000 for the year, you could deduct $2,000. Assuming they’re $10,000, you could deduct $5,000. You get the idea.
So what qualifies as a deduction? The IRS includes:
- Costs of diagnosing, treating, easing, or preventing disease
- Prescription drugs and insulin expenses
- Costs of insurance premiums
- And particular long-term care insurance costs
These medical and dental expenses are for you, your spouse, or your dependents. More specific breakdowns include expenses like acupuncture, ambulance service, fertility enhancement, nursing services, occupational therapy, reconstructive surgery, vision correction surgery, and x-rays.
Of course, some exceptions and special circumstances apply — many of which you can find in IRS Publication 502. You can also deduct certain travel costs for medical care, which include using public transportation, ambulance service, tolls, and parking fees as well as deducting your mileage if you drive yourself.
Expenses that don’t qualify
It’s equally important to understand what does not qualify. Medical expenses that are not deductible include cosmetic surgery, laser hair removal, hair transplants, nutritional supplements, over-the-counter drugs (unless prescribed), and teeth whitening.
You also cannot double benefit. In other words, you cannot claim “a tax deduction for medical expenses paid with funds from your Health Savings Accounts or Flexible Spending Arrangements.”
Changes for Californians
Starting January 1, 2020, California residents must obtain the minimum essential health care coverage to avoid a penalty of $695 or more enacted by SB 78 (Ch. 19-38). You can submit an application to Covered California from October 15, 2019 to January 1, 2020. No- and low-cost options are also available through the Medi-Cal program, with subsidies for individuals and families with incomes up to 600% of the federal poverty line. Federal subsidies are also available on incomes up to 400% of the poverty line.
Link to Covered California is here.
If you’re still unsure, you can always use the Interactive Tax Assistant tool on the IRS website to calculate your deductions. Publication 969 details the Health Savings Accounts and other health care tax information that you might need when planning for the new year.
Maximizing your deductions
To ensure you are ready for the changes in 2019 and 2020, your best bet is maximizing your deductions and making sure you comply with the requirement to have coverage. As always, you can turn to the tax professionals at C&D to help you navigate the new benefits.