Tax Changes

Medical Expenses Threshold Increase

The qualifying medical expenses grant a big tax deduction to taxpayers. If you itemize, you surely will claim this tax deduction. But from previous years to the next tax season, your deduction amount will be smaller. For 2020 tax year returns you’ll be filing in 2021, you will only be able to claim the qualifying medical expenses that exceed 10% of your adjusted gross income. This threshold was previously 7.5% which means you will lose a deduction 2.5% of your AGI.

Let’s say your adjusted gross income is $50,000 and you have $7,500 in qualifying medical expenses. This means your medical expenses over 10% of your AGI ($5,000 in this example) will be tax-deductible. In 2021, this means a deduction of $2,500. If the threshold remains the same as in 2020, the deduction would be $3,750..

See other tax deduction threshold changes from here.

Qualifying Medical Expenses

First and foremost, any medical expense that is reimbursed isn’t tax-deductible. This includes reimbursements by insurance or employer. Also, cosmetic procedures are outside of qualifying expenses. Therefore, a nose job isn’t going to grant you a tax deduction.

What’s deductible then? Well, preventative care, any form of treatment, surgeries, dental, vision, and hearing care are all qualifying medical expenses. This means the purchase of glasses, contact lenses, hearing aids, or false teeth are deductible. On the other hand, visits to psychiatrists and psychologists are tax-deductible as well.

Claiming Medical Expenses Deduction on Tax Return

One thing to know before claiming the medical expenses deduction, you must itemize in order to claim your expenses. If you take the standard deduction, you cannot claim this deduction. With that said, on Schedule A, you will report medical expenses.

On Line 1, enter your total medical expenses.

On Line 2, enter your adjusted gross income.

On Line 3, enter 10% of your adjusted gross income.

On Line 4, enter the difference between 10% of your adjusted gross income and medical expenses.

What you enter on Line 4 will be your medical expenses deduction for that tax year. As usual, if your total itemized deduction isn’t more than the standard deduction, take the standard deduction instead.

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