With the low rate of taxpayers who itemize and the even lower amount of people who have enough medical expenses to get over the 7.5% hurdle to make any of them deductible, there are very few people who can benefit from the itemized deduction. Many people will see a tax benefit when it comes to their companies cafeteria plan (125 plan) or health savings account.
You may ask yourself, why medical expenses? With the very low rate of taxpayers who actually itemize and the even lower amount of people who have enough medical expenses to get over the 7.5% hurdle to make any of them deductible, there are very few people who can benefit as itemized deduction.
Why do we want to talk about medical expenses?
Many people will benefit from a decrease in tax, it just won’t be because they itemize their deductions.
- It’s going to be in the form of a cafeteria plan, or maybe a health savings account or maybe even their insurance paying for it.
What is the difference between a cafeteria plan and a health savings account?
Health savings accounts are allowed for people with high deductible health care plans. But not all high deductible plans are HSA eligible plans. You need to check with your employer or health insurance provider to make sure your plan qualifies.
- If your plan qualifies, you may be able to contribute $3,600 if you have a self only plan or $7,200 if you have a family plan in 2021.
- The amounts are even higher if you are 55 or older.
- And you can get a tax deduction for contributing even if you have no medical expenses that year.
- This can be done through payroll or working with your bank to set up an account.
A Cafeteria or Section 125 plan is available for those who do not have HSA eligible plans as long as your employer offers such a plan.
- Difference here is that your employer will take money off your paycheck pre-tax which you can then get back if you have medical costs during the year.
- But a warning – if you have more withheld from your paycheck than you have in medical expenses for the year, you could lose it. That’s why cafeteria plans are called use it or lose it!
Did I hear this week that personal protective equipment (PPE) can now be taken as a medical expense?
You heard right. The IRS just announced recently that PPE such as masks, hand sanitizer and sanitizing wipes can be taken as medical expenses as long as the purpose for buying them is to slow the spread of COVID-19
What else can be used as medical expenses?
- You can deduct many things from doctor’s visits, to eye care to dental care, unless those expenses are considered to be cosmetic in nature.
- On the dental side, artificial teeth count as well as teeth cleaning, but teeth whitening does not.
- For vision, most of it counts – eye exams, glasses, laser eye surgery, contacts, including saline solutions.
- For moms – Fertility treatment, doctor visits and even breast pump and supplies. Sorry no diapers or maternity clothes. If diapers were deductible, I would not have paid any tax while my girls were in that stage.
- Other items include home improvements to make a home medically accessible
- Lastly, if you are addicted to alcohol or drugs, you can also use the costs to attend meetings or inpatient therapy.
- We could keep going on and on, but I have a feeling that we are out of time.
Please contact us for further information or ask about Medical Expenses.