As health insurance professionals, you are most likely well aware of your ability to write off certain qualified health care expenses during tax time. Remember though — not all of your consumers are meticulous itemizers like you. Fortify your customer service approach by informing consumers about their health care cost deduction options. You may have all of the details about this intricate topic committed to memory, but just as a refresher, let’s talk about it.
While most Americans are aware that they can deduct things like charitable giving and mortgage interest, many are unaware of the health care costs deduction. A study done in 2012 by GoHealthInsurance.com found that 81 percent of those surveyed had paid out-of-pocket for medical care, but only 34 percent had plans to deduct those costs. The rules about deducting health care costs can be a little confusing, so let’s go over the current state of affairs.
Tax payers are only allowed to deduct medical expenses that are paid out-of-pocket and exceed 7.5 percent of your Adjusted Gross Income (AGI). Let’s illustrate just how that works: Dan’s AGI is $40,000 and he spent $10,000 last year on health care costs.
Math time! $40,000 (Dan’s AGI) x 7.5 percent = $3,000 $10,000 (Dan’s total medical costs) – $3,000 = $7,000.
Dan can deduct $7,000 of his medical expenses for 2012.
This is the last year that Dan can get this particular tax break, however, because the regulations are changing for 2013. In order to deduct medical expenses for 2013, his medical costs will have to exceed 10 percent of his AGI, as opposed to 7.5 percent. That’s quite a difference.
Those who are 65 or older before 2013 comes to an end will be allowed to stick to the current percentage rate of 7.5 percent of AGI, at least through 2016.
Types of deductible health care costs
The IRS provides a comprehensive list of all the health care costs that are eligible for deduction. Some of them might take your consumers by surprise:
- Prescription drugs costs
- Costs for prescription eye glasses
- Payments for wheelchairs and crutches
- Transportation (taxi, bus, and train fare to and from the doctor or hospital)
Health care costs that cannot be deducted