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US House Endorses Bill To Maintain Medical Expense Deduction

by Scott Hamilton, Tax-News.com, Washington

15 September 2016


On September 13, the US House of Representatives passed a bill, by a vote of 261 to 147, to restore the lower 7.5 percent threshold of medical expenses-to-gross income for claiming an individual income tax deduction under the Affordable Care Act (ACA).

Under the ACA, taxpayers may deduct, from their taxable income, the cost of out-of-pocket medical expenses that exceed a certain percentage of their adjusted gross income. Following a law change in 2013, individual taxpayers under the age of 65 could only deduct medical expenses when they totaled at least 10 percent of the adjusted gross income – the value of expenses above this 10 percent threshold can be deducted.

The Bill passed by the House of Representatives would prevent a change to the threshold for over-65s, which from the end of this year would have increased the threshold applying to this category of taxpayers from the current 7.5 percent to 10 percent.

House Ways and Means Committee Chairman Kevin Brady (R – Texas) welcomed the Bill, stating: "Before Obamacare, Americans could find some relief in their ability to deduct high-cost, out-of-pocket medical expenses on their taxes. … This Obamacare provision is a tax hike, plain and simple. It makes paying for care even more difficult for individuals, families, and seniors who may already be struggling to afford the care they need."

The National Taxpayers Union added that the Bill would "have an enormous impact on the budgets of American families. … Over 10m taxpayers every year use this deduction to cushion the burden of medical expenses and this tax increase would cause an undue financial burden to seniors and those struggling with chronic medical conditions."

However, the Center on Budget and Policy Priorities noted that "Congress has already delayed the medical device tax, the health insurance tax, and the excise tax on high-cost health plans (the so-called Cadillac tax). Repealing the increase in the medical expense deduction threshold would encourage efforts to scale back still other revenue provisions of health reform."

Ways and Means Committee Ranking Member Sander Levin (D – Michigan) also criticized the unfunded nature of the legislation, and pointed out that it would reduce revenues by USD32.7bn over 10 years, according to the Joint Committee on Taxation. In addition, he said, "approximately two-thirds of the tax benefit from [the bill] will accrue to taxpayers earning USD100,000 or more."

He noted that the White House has issued a Statement of Administration Policy that "strongly opposes" the Bill and confirmed that it would be vetoed if presented to President Barack Obama for his signature. The Statement added that the Bill "would repeal a provision of the Affordable Care Act that limits a regressive, poorly targeted tax break for health care spending."

TAGS: individuals | tax | law | tax thresholds | health care | legislation | United States | tax breaks | individual income tax | Tax

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