CPA & Business Advisory Blog

Health Care Reform & Medical Expense Deduction

The Patient Protection Act, as amended by the House Reconciliation Act, raises the threshold for the itemized medical expense deduction from 7.5 percent of adjusted gross income (AGI) to 10 percent of AGI for regular income tax purposes effective for tax years beginning after December 31, 2012. However, individuals age 65 and older (and their spouses) would be temporarily exempt from the increase. The exemption for seniors would apply to any tax year beginning after December 31, 2012 and ending before January 1, 2017 if the taxpayer or the taxpayer’s spouse attained age 65 for the tax year.

Impact

The Patient Protection Act, as amended by the House Reconciliation Act, makes no adjustment to the allowable medical expense deduction for purposes of computing alternative minimum tax (AMT) liability. For now, the AGI fl oor for AMT purposes remains at 10 percent.

Comment

The Patient Protection Act, as amended by the House Reconciliation Act, does not extend the employer-provided health coverage gross income exclusion for employees’ spouses and dependent children to coverage provided to domestic partners. Pending legislation, the Domestic Partnership Benefits and Obligations Act of 2009 would provide the same employment benefits to federal employees in same-sex partnerships currently provided to married federal employees and their spouses, including healthcare, retirement, family leave, and other benefits.

Adult children coverage. The Patient Protection Act, as amended by the House Reconciliation Act, extends the employer-provided health coverage gross income exclusion to coverage for adult children up to age 26. To be eligible, they must be also eligible to be claimed as a dependent for tax purposes.

Adoptions. The Patient Protection Act makes the adoption credit refundable. It also raises the dollar limitation for the credit to $13,170 and extends the credit through 2011. The health care package also enhances the incentives for adopting children with special needs.

Medicare Part D

The Patient Protection Act eliminates the deduction for the subsidy for employers that maintain prescription drug coverage for retirees who are eligible for Medicare Part D.

Comment

The House Reconciliation bill delays the effective date of this provision by two years until 2013.

SourceCCH, a Wolters Kluwer business

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