I dropped off my tax stuff with my accountant Monday. But before I did, I called Blue Cross/Blue Shield to get an idea of my out-of-pocket medical expenses for last year. My 11-year-old Jessica had her adenoids out last spring and I thought I may qualify for a deduction for medical expenses on Schedule A (itemized deductions).
I had some 17 claims on which BC/BS paid $8,737 and I paid some $1,464, plus $684 to Jess' optometrist and $231 to my dentist. Still, the $2,379 total didn't meet the test for deductions. You can deduct only the amount exceeding 7.5 percent of your adjusted gross income (AGI). With Obamacare, that percentage moves to 10 percent starting with the 2013 tax year. For taxpayers 65 and older, it stays at 7.5 percent through 2016; for taxpayers in the alternative minimum tax the hurdle is already at 10 percent.
Using last year's AGI, the 7.5 percent test for me would be $2,049. And I can't include the $1,000 I stashed in a flexible savings account on which I already got a tax break; you can't double dip.
According to a Forbes report last year, more folks are eligible for the deduction, including retirees (think high medical expenses, low income), the unemployed, the underemployed and even working folks with employer coverage who are paying ever more in high out-of-pocket costs.
But Edmond certified public accountant Mike Bell wasn't surprised I didn‘t meet the test.
“The expenses can add up and surprise you sometimes, but usually only a handful of our clients each year get any portion of their out-of-pocket medical as a deduction,” Bell said. “I always tell folks who are disappointed they don't get benefits for their expenses that those that get a deduction for medical expenses usually had a pretty bad year — incomewise, healthwise or both,” he said.
That's for sure. Blake Shannon, 30, a contract landman from Yukon, estimates he last year paid $10,100 out of pocket toward an estimated $350,000 in medical expenses beating Hodgkin lymphoma, while Tabbi Burwell, 31, of Choctaw, and her husband incurred some $8,600 in costs, mainly for her infertility treatments.
“It's appalling the things you can't write off, when you can't write off fighting cancer,” Shannon said. “It's like you have to make six figures before you can claim anything.”
According to 2010 data, the latest available, only 10.4 million taxpayers qualify for the medical expenses deduction, claiming a total of some $85.3 million, said Lea Crusberg, south Texas and Oklahoma spokeswoman for the Internal Revenue Service.
Meanwhile, a high school friend of mine who works for the state, is frustrated he, starting last year, could set aside only $2,500 in his medical flex account because of health reforms. Previously, his employer allowed him to put $3,600 annually in the tax-favored account, while other employers allowed up to $5,000 annually.
“The cafeteria plan helped by immediately reimbursing deductibles and co-pays,” he said. “We max it out between my wife's migraines and all the other ailments Dr. Oz has her worried about. I am Type II diabetic, have gout and am on high blood pressure meds I take daily.”
I last fall made a $2,500 2013 contribution to my FSA because my daughter needs braces. In fact, her orthodontist put them on yesterday.
Meanwhile, health care costs continue to skyrocket. Along with out-of-pocket costs last year, I paid $2,049 in health insurance premiums, while my employer paid $4,784.
It's no surprise that health insurance premiums eat up an average 24 percent of yearly household incomes — a fact I learned at a Society of American Business Editors and Writers seminar last month in New York.
I'm just hoping that, a year from now when it's time to file our 2013 income taxes, I again fail the test to deduct any medical expenses.