Changes in The Itemized Deduction for Medical Expenses

Written by: Christy Rakoczy

Changes in The Itemized Deduction for Medical Expenses

When President Obama passed the Affordable Care Act, also referred to as ObamaCare, Americans were promised that nothing would be added to the deficit and that they’d soon be enjoying lower-priced health insurance. With ObamaCare scheduled to go into effect full force in 2013, we wait to see whether these promised benefits materialize even as newspapers such as the Wall Street Journal and Forbes warn that premiums will actually become much more costly due to the new regulations and insurance mandates.  One thing that is clearly materializing, however, are a host of new limitations on deductions that effectively increase the medical expenses for many. The additional taxes come from both limitations on Flexible Spending Accounts and limitations on itemized medical deductions.

Limitations on Flexible Spending Accounts

Traditionally, many Americans have taken advantage of special accounts called Flexible Spending Accounts in order to set aside pre-tax dollars to pay for healthcare costs. While some employers imposed limits on the amount of money that workers could contribute to flexible spending accounts, there was no federal cap on how much people could put into these accounts. This meant that those who wanted more medical coverage to be paid for with pre-tax dollars could put aside larger amounts. Under the new rules set forth in ObamaCare, however, these flexible spending account contributions are capped at $2,500. This will raise another $13 billion in revenue for the United States but it will mean that those who previously set aside more will now be limited in how much they can save for medical services pre-tax.

Limits on Itemized Medical Conditions

Another important form of tax savings enjoyed by many was the ability to deduct certain medical expenses. Itemized Medical Deductions were allowed when the medical expenses were equal to or in excess of 7.5 percent of adjusted gross income. In other words, a person who made $100,000 could deduct medical expenses once the costs exceeded $7,500. This would effectively reduce the costs of these expenses by whatever the person’s tax rate was who was making the deduction.

ObamaCare raised the threshold for itemized medical deductions to 10 percent. Now, the same individual who was previously able to deduct expenses once they totaled $7,500 will not be able to deduct expenses unless they reach or exceed $10,000.

Healthcare Costs and Taxes

Those who will be hit the hardest by these two tax increases are those who have higher medical costs and who would normally be able to pay for them with pre-tax dollars or take a tax deduction for them. Additional ObamaCare taxes on medical devices, as well as an insurance mandate that imposes a penalty on those who do not buy health insurance, may also increase costs for many families.


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