If you’re like many Americans, doing your taxes is a confusing chore. Deductions are crucial elements to filing taxes, especially if you’re expecting a return. However, few people know about all their options, especially their health deductions. And as we move into 2024, the new Affordable Care Act will cause even more changes to health deduction section of your tax forms, but not as much as you might think right away.
“Most major changes brought by the Affordable Care Act will come in 2024,” advised Jean Chatzky, finance expert and journalist whose Jean Chatzky’s Money School debuts this April. However, there are a few things that Chatzky advises taxpayers watch for this year:
- The contribution limit for Flexible Spending Accounts has been revised downward, to $2,500 beginning in 2024. There was no limit before, though most employers capped it at $5,000.
- Medicare payroll taxes may increase for some taxpayers. Those who earn over $200,000 as an individual or $250,000 as a couple will pay 2.35% to medicare. Those who earn less will continue paying the current rate of 1.45%.
Where taxpayers can see the biggest advantage will be in their medical-related deductions.
“Many taxpayers assume they can’t reach the 7.5% threshold to deduct medical expenses, but you might be surprised if you add it all up and include everything the IRS allows,” advised Chatzky. She provided a lot of insight on the common oversights we make that can and probably will push you to the 7.5% threshold.
“That’s preventative care and major medical procedures — surgeries and other treatments — as well as dental and eye doctor visits and care. Mental health care is included, as are prescription medications and things like hearing aids, glasses, and contacts. Acupuncture, breast pumps and supplies, chiropractic care, insurance premiums for policies that cover medical care (not paid by an employer), and stop smoking programs (but not over the counter aids like nicotine gum),” explained Chatzky. As well, she says most people overlook deducting travel expenses incurred because of medical care, dollars that can help push you over 7.5%. Mileage, public transportation fare, and parking expenses can be deducted if they are primarily for and essential to medical care.
What does this 7.5% deduction look like for the average tax payer? Jenyle D. Koskie*, CPA, with Stone and Koskie CPA, C.P., paints the picture.
“For example, if your 2024 adjusted gross income (AGI) is $100,000 for the year and you itemize your deductions, you would be able to deduct any of your medical expenses that are over $7500. If your medical expenses add up to only $7000, then you would not be able to deduct any medical expenses because you did not get over this limit.”
Koskie continued the deductible list with lesser known inclusions, like treatment for alcoholism, lactation expenses, childbirth preparation classes [for mother only, not the coach that comes with her], chiropractors, computer storage costs of medical records, dyslexia language training, fertility enhancement, health club dues when prescribed by a doctor to relieve a specific medical condition, lead paint removal, special school tuition for relief of a handicapped condition, and weight loss program for the treatment of a specific disease (not just to improve appearance). While these lists are not conclusive, they’ll get you closer to a greater deduction than ever before.
Two other things to watch, Chatzky says to include your dependent’s expenses too, as you can apply toward your deductions. And Andrew Schrage of Money Crashers says the rules are slightly different for the self-employed, making consultation of a tax professional most important.
Looking Ahead to 2024 Taxes and Beyond
The most major change on the horizon for taxpayers is the 2024 Affordable Care Act, or Obamacare. Koskie explained how this will affect your medical deductions for future filings.
“New for 2024 and years going forward, The Affordable Care Act raises the 7.5% AGI limit to 10% in 2024. So, if using the previous example in 2024, you would have to have more than $10,000 in medical expenses to be able to take the excess as a deduction on your return,” said Koskie. That’s good news for planning next year’s filing, and fair warning to start saving every receipt now.
That’s just one thing you can do to put yourself ahead of filing next year. The best move you can make this year to help next? Your Flexible Spending Account (FSA) contributions.
“Contribute to a medical FSA if your employer offers one. You’ll be able to pay for eligible expenses with pre-taxdollars. And if you’re married, you can beat the new $2500 limit by each putting that amount away in your employer’s plan — provided you’re both offered one,” advised Chatzky. She warns taxpayers not to stash away too much, because these plans are “use or lose it” – you lose whatever you don’t spend at the end of your coverage period (typically 12 months). If you know you have major expenses for the year ahead, like fertility treatment, child birth, or a major surgery, you can plan to contribute more to an FSA. Chatzky says you can use this money for a host of medical expenses like prescriptions (but not over the counter medications, unless your doctor writes you a prescription for them), copays, lab work, the chiropractor, and many more (check your plan for details).
Are you taking all the deductions that you’re allowed this year? Have you already been saving your receipts for next year? As the law changes, Americans are going to need to be as diligent as they possibly can. Be as prepared as possible when going in to your filing and your return will no doubt reap the benefits of such diligence.
Also Read:
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Has Michelle Obama’s Let’s Move Made a Difference in Three Years?
20 Affordable Ways to Lose Weight Without a Gym Membership
Chatzky image via usw.edu
*Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.