For retirees living on a fixed income, any fluctuation in expenses can disrupt your budget and financial planning. And since your age bracket is the most likely to experience costly health complications, medical bills might concern you even more than most people.
At the same time, the last thing you want is a major change in your income tax liability. No one likes to receive unpleasant surprises each spring when filing taxes.
That’s why we’re happy to announce some good news, which will particularly impact retirees: The income tax deduction for medical expenses has been made permanent, as of December 2020.
Previously, you have been able to deduct medical expenses that exceeded 7.5 percent of your adjusted gross income during the year. But according to the schedule set forth by the Affordable Care Act, that threshold was set to increase to 10 percent this year. That would have meant retirees, and anyone else experiencing high medical bills, would lose a considerable portion of their income tax deductions.
This reduction in the tax deduction has been looming over us, but luckily Congress took notice in December. As part of their pandemic relief package, lawmakers agreed to make the 7.5 percent threshold permanent rather than allowing it to rise as previously planned.
This comes as welcome news to anyone with medical bills who itemizes their federal tax return, but is especially impactful to retirees who experience greater difficulty with rising costs of living. You can continue deducting medical expenses that exceed 7.5 percent of your adjusted gross income, including items like Medicare premiums, co-pays, medication, medical equipment, and more.
Managing your medical expenses can feel like a full-time job, but remember we’re here to help. Call us to discuss your concerns, and we can help you compare different Medicare plans to ensure that you are enrolled in the one that works best for you.