2013 Rules on Medical Expenses and Taxes

The 2010 law on health care reform included some changes on medical expenses and taxes that go into effect this year.

First, the amount that you can contribute to a health flexible spending account (FSA) is now limited to $2,500 a year. The limit will be adjusted annually for inflation.

Next, there’s a change in the threshold for deducting unreimbursed medical expenses. For those under the age of 65, the prior threshold was 7.5% of adjusted gross income. Now only unreimbursed medical expenses exceeding 10% of a taxpayer’s adjusted gross income are deductible. Taxpayers who are 65 and older may continue to take an itemized deduction for medical expenses exceeding 7.5% of adjusted gross income through the year 2016.

The IRS issued “Seven Important Tax Facts About Medical and Dental Expenses” reminding taxpayers of the rules governing deductibility of costs not reimbursed by insurance.

Not only is the deduction for medical and dental expenses limited by the 10% adjusted gross income threshold, taxpayers must itemize deductions to benefit. No expenses can be claimed where the standard deduction is taken.

Qualifying expenses include most medical and dental costs paid for the taxpayer and his or her spouse and dependents. Prescription drugs and insulin qualify, and the cost of medical, dental, and some long-term care insurance also qualifies. The cost of travel to obtain medical care qualifies, including the cost of public transportation or an ambulance, plus tolls and parking fees. If a car is used for medical travel, a standard mileage rate of 24 cents a mile is deductible.

Since using funds from health savings accounts or flexible spending arrangements to pay for medical expenses is usually tax-free, no deduction is allowed for expenses paid with funds from these plans.

If you need details about the current rules on deducting medical expenses, contact our office. 

Call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.