Reduced Tax Breaks for Medical Expenses Under Obamacare

Medical expense tax breaks are changing under Obamacare.

For decades all taxpayers who itemize have been entitled to a tax deduction for medical and dental expenses for themselves, their spouses, and their dependents. Eligible expenses include both health insurance premiums and out-of-pocket expenses not covered by insurance.

Unfortunately, there is a significant limitation on the deduction, which can make it useless for many taxpayers: You can deduct only the amount of your medical and dental expenses that are more than a specified percentage of your adjusted gross income (AGI). (Your AGI is your total taxable income, minus deductions for retirement contributions and one-half of your self-employment taxes (if any), plus a few other items (as shown at the bottom of your Form 1040).)

For many years, this percentage has been 7.5%. Thus, for example, if your AGI was $100,000, you could deduct your medical expenses as an itemized deduction only if, and to the extent, they exceed $7,500.

However, as a result of the Obamacare reforms, starting in 2013, the AGI percentage threshold has gone up to 10% (except for people 65 and over, who will be exempt from the increase until 2017). This will make it much more difficult to qualify for the deduction. For example, if your AGI is $100,000, you'll be able to deduct medical expenses only if, and to the extent, they exceed $10,000.

Example: Al is an employee whose AGI for 2013 is $100,000. He pays $10,100 out of his own pocket for health insurance and uninsured medical expenses for the year for himself and his wife. For Al to deduct any medical expenses, they need to exceed 10% of his AGI, which is $10,000 (10%

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