The amount paid within the year for medical expenses involving health insurance premiums tender’s generous potential deductions and cuts during the tax period.
Obtaining specific conditions can qualify you for an itemized deduction for medical expenses in the 2019 tax season. Alternatively, you could get an untaxed refund from accounts like flexible spending, health reimbursement or a health saving.
Claiming for itemized rather than the standard refund deduction will allow a large percentage of medical expenses to become tax-deductible. If in case the overall medical cost surpasses the allowable limit of 7.5% of the AGI (Adjusted Gross Income) for the tax season 2018, claiming for deductible balance is possible.
Prior to the implementation of the Tax Cuts and Jobs Act (TCJA) the amount of the expenses that surpass the 10 % AGI merely eligible for deductions. It was changed temporarily. TCJA minimizes the limit subsequently for 2017 and prolonged the reduction forward by 2018. By the 2019 tax season, the percentage undertake back to 10%.
The minimized limit may lead to a greater deduction since several expenses will become deductible.
It was specified by the Internal Revenue Service (IRS) that those expenses corresponding to “diagnosis, cure, mitigation, treatment, or prevention of disease or condition any part or function of the body” are the eligible medical expenses.
The below is the list for qualified expenses
• Payments for medical services from physicians, surgeons, dentists, and other medical professional
• Payments for medications prescribed by a medical professional
• Payments for medical devices, equipment, and supplies prescribed by a medical professional like eyeglasses
• Payments for health and dental insurance premiums, given that it was not reimbursed by the employer
• Payments for long-term care and long-term care insurance
• Transportation and home allowance for traveling to a health care facility as well as the mileage having the rate of 18 cents per mile as of 2018
Otherwise prescribed by medical professionals, across the counter remedies, nutritional supplements, vitamins, and first aid supplies will not be an eligible expense. If you have doubts about identifying the deductible medical expenses, the IRS will provide you a free tool that helps you solve the problem.
It is notable that in 2018, it is advantageous to utilize pre-tax savings plan to cover incidental medical expenditures rather than getting an itemized deduction. The reason behind this is that starting from the 2018 tax season, TCJA almost increases the standard deduction twice for all the filing statuses. Despite the switch of the AGI limit to 7.5 %, it is a way better option. It is worthless itemizing your deductions if it does not surpass the standard deduction eligible claims.
For those married couples who are filing their tax together their standard deductions for the 2018 tax season are $24,000 while $12,000 for individuals and $ 18,000 for those who are eligible as head of the family. Bear in mind that you are providing IRS unnecessary funds if you are itemizing deductions that do not surpass the latter values.
Every single medical expense is known to be 100% deductible and is taken as free of tax if it was compensated out of flexible spending accounts (FSAs), health savings accounts (HSAs), and health reimbursement accounts (HRAs). Ideally, the itemized deduction is halfway tax-deductible because your 7.5 % AGI is merely the deductible value you can have. Therefore, an individual cannot claim any deduction if his/her total medical expenses within the year will not reach 7.5% of the individual’s AGI.
Particular employees can possibly qualify to create medical flexible spending accounts with the help of their employers. FSA plans allow the saving of pre-tax funds through a direct deduction on employees’ payroll, thereafter refunds will be made after the submission of different medical expenses to the account.
As of 2018, the maximum contribution limit per employee per annum is $2,650. Spouses of married individuals can also add up to the contribution limit to the existing PSA of the partner. Qualified medical expenditure covers co-pays, deductibles, prescriptions, and some medications without prescriptions.
The disadvantage of having these is that the accumulated saved amount must be utilized within the year, which means that it is not possible to save for future health calamity.
Health reimbursements accounts are provided to workers by a few employers. The employer’s refund of the specific eligible medical expenses to its employee is untaxed.
The employers will contribute to an account to which the reimbursement request of employees will be submitted. The amount of money an employer can contribute is limitless, moreover, the fund can last for the following years if it was not utilized in the same year which is contrary to FSA.
Creating health savings accounts can be made individually or under a group plan together with its employer. It is also the same with FSA which is a pre-tax saving account. But HSA’s neglect the “use-it-or-lose-it” component for accumulated contribution contrary to FSA. The carried out funds from the previous year will be used to pay for the succeeding years’ expenses.
Owners of HSA must obtain a high-deductible health insurance plan to be eligible for the usage of the untaxed saving money to cover medical expenses. The health saving accounts aid to clears the policy’s incidental expenditure.
For the 2018 tax season, the maximum contribution of an individual is $3,450 while $6,900 for families. Individuals who are 55 years of age are entitled to an additional “catch-up” contribution amounting to $1,000.
JG Tax and Financial Services