Will Obamacare Affect My Taxes This Year?
Q: Can you tell me how my healthcare tax deductions will be affected this year? I'm 64 and continue to work. My adjusted gross income will be about $48,000. I don't receive any Social Security yet, and I usually itemize since I have high medical expenses. This year I estimate that I'll have $7,092 in unreimbursed medical expenses. I'm divorced and file as single household with no dependents.
A: For ordinary taxpayers, itemizing health insurance premiums and medical expenses have been one of the only ways to get any savings from high healthcare costs. But under "Obamacare" the income threshold was increased effective January 1, 2013. Taxpayers younger than age 65 will only be able to deduct medical expenses that exceed 10% of their adjusted gross income. (Seniors and their spouses, age 65 and older, are temporarily exempt through 2016, and can continue using the old threshold of 7.5% of income.)
Generally you can deduct amounts you pay out-of-pocket, without reimbursement from an insurance company or employer. Those expenses include things like co-pays and co-insurance, prescription drugs, medical supplies and equipment, dental care, eye exams and glasses, hearing aids, the cost of getting to and from treatment, and premiums for health and long term care insurance. (For details see IRS publication 502.)
The higher income threshold would hit senior taxpayers with high medical expenses like you. Assuming your adjusted gross income was $48,000 last year, you were able to deduct medical expenses in excess of 7.5% of income – $3,600. Your deduction totaled about $2,292. For 2013 however, you will only be able to deduct the excess over $4,800. Assuming the same expenses as you cite, your deduction will be less than half of your deduction last year, $1,092. If all things stayed the same you would probably pay a tax increase of roughly $250-$300. Please note that this is only an estimate and you may have other factors that would affect your return. Please consult a tax professional.
If you have a big healthcare expense that you were hoping to shove into next year, like getting new glasses, you may want to go ahead and get as much in medical expenses taken care of before the end of the year in order to increase the amount you can claim on your itemized deductions for 2013.
Will you be affected by this "Obamacare" tax increase? Once you have filed your taxes for 2013, and know the bottom line, TSCL wants to hear from you. Let us know how the new 10% of adjusted gross income threshold affected your healthcare deduction and how much more you had to pay in Obamacare taxes. Send us an email with "Obamacare tax" in the subject line. Or send a letter to: TSCL, 1001 N. Fairfax St. #101, Alexandria VA 22314.