Tax Planning: Medical and Dental Expenses

Tax Planning: Medical and Dental Expenses

Medical expenses can trim taxes. Keeping good records and knowing what to deduct make all the difference. Taxpayers can only claim medical expenses that they paid for if they itemize deductions on a federal tax return. Taxpayers can deduct most medical and dental costs that they paid for themselves, their spouses, and their dependents. The Consolidated Appropriations Act, 2021 included changes to tax benefits for medical expenses. The Act provides for a permanent reduction in the medical expense deduction threshold from 10% to 7.5% of adjusted gross income.

Qualifying Expenses. In order to be eligible for the medical expense deduction, an individual’s expenses must be paid for medical care. Expenses for medical care include payments for medical or dental services, prescribed medicine and drugs, insulin, medical equipment and supplies, medical insurance premiums, transportation needed to get medical care, and many other medical-related expenses. Although capital expenditures for home improvements and similar items are generally not deductible, if the purpose of a capital expenditure is for the medical care of an individual or the individual’s spouse or dependents, the cost can be deductible.

Health Coverage Tax Credit (HCTC). Eligible individuals are allowed a refundable tax credit based on the amount they pay during eligible coverage months for qualifying health insurance coverage for the eligible individual and any qualifying family members. The credit amount is equal to 72.5% of qualified health insurance premiums. This HCTC is available only to (i) individuals who receive trade adjustment assistance (TAA) or TAA alternative payments, and (ii) retirees who are age 55 or older and receive benefits from the Pension Benefit Guarantee Corporations (PBGC). The credit is not available to unemployed individuals who pay for health insurance under COBRA unless they fall into one of these two narrow categories.

Please call our office if you would like assistance on reviewing your individual income tax situation to understand how you may benefit from these tax changes that apply to medical and dental costs.

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