Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas www.hrp.net. If you are like most people, you find yourself paying more for out-of-pocket healthcare costs. You may wonder what benefit you can get on your tax return for all the expenses. The answer for many people is nothing. But you may be one of the fortunate ones who is able to claim healthcare-related tax breaks for health insurance premiums and medical expenses. This presentation explains the rules.

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Phone: 281.880.6525
Get Ready for Onerous New 1099
Reporting Rules
Onerous New 1099
Reporting Rules
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2. With the ever-increasing cost of healthcare, you should be vigilant in
looking for related tax deductions that are available to you. As we will
explain below, a rule change taking effect this year makes a deduction for
medical expenses harder for most taxpayers, but you may be overlooking
some deductible health insurance premiums that will offset the harsher
rule.
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3. Higher Threshold for Itemized Medical Write-Offs
» Before this year, you could claim an itemized deduction for qualified
medical expenditures for you, your spouse, and your dependents -- to the
extent those expenses exceeded 7.5 percent of your adjusted gross
income (AGI).
» Your AGI is the number at the bottom of page 1 of your Form 1040. It
includes all taxable income items and is reduced by certain write-offs
including those for moving expenses, deductible IRA contributions,
alimony payments, and student loan interest.
» The 7.5 percent-of-AGI hurdle was hard enough to clear. Now, thanks to
the 2010 healthcare legislation, an even higher 10 percent-of-AGI
threshold applies to most taxpayers -- effective for this year and beyond.
» Exception: If either you or your spouse will be 65 or older as of December
31, 2013, the unfavorable 10 percent-of-AGI threshold will not affect you
until 2017 (until then, the 7.5 percent-of-AGI threshold will continue to
apply in your case).
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4. » Key Point: For the 2012 tax year, the more-favorable 7.5 percent-of-AGI
threshold applies to taxpayers of all ages. So the higher threshold, which
takes effect this year, does not affect the 2012 tax return due April 15,
2013 (or October 15 if you file for an extension).
» Regardless of which percent-of-AGI threshold applies, don't overlook
medical expenses that could push you over the applicable threshold.
Health insurance premiums often comprise the biggest category of
allowable expenses. Here's what you can include in the potentially
deductible pot.
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5. Common Health and Dental Insurance Premiums
You can include garden-variety health and dental insurance premiums to
cover you, your spouse, and your dependents--including children. You
cannot deduct premiums to cover an under-age-27 adult child unless he or
she qualifies as your dependent (that generally means you must provide
over half the child's support for the year).
Source: Internal Revenue Code Section 213.
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6. Premiums for Medicare Parts A, B, C, and D and Medigap Coverage
The IRS now admits that Medicare insurance premiums count as health
insurance premiums for purposes of the itemized deduction for medical
expenses. Specifically, premiums for all four Medicare Parts -- A, B, C, and
D -- should qualify and premiums for Medigap coverage should too.
1 Medicare Part A is commonly called hospital insurance coverage. Most
1
eligible individuals are automatically covered for Part A without having
to pay premiums because the Part A premiums are considered paid
from Medicare taxes on your wages while you or your spouse were
working. However if you did not pay Medicare taxes, you may have to
pay premiums to get Part A coverage. If so, the Part A premiums for
2012 could have been as much as $451 per month per covered person
(up to $5,412 for the year).
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7. 2 Medicare Part B is commonly called medical insurance coverage. Part B
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coverage together with Part A coverage is often called "original"
Medicare. Part B mainly covers doctors and outpatient services, and
most people must pay monthly premiums for this coverage. For 2012,
you probably paid the standard monthly Part B premium of $99.90
($1,199 per covered person for the year). Higher-income individuals
paid more--up to a monthly maximum of $319.70 for 2012 (up to
$3,836 per covered person).
Part B premiums are usually withheld from your Social Security benefits.
If so, the amount withheld for the year will show up as an adjustment
on Line 3 of Form SSA-1099 (Social Security Benefit Statement), which
you should have received from the Social Security Administration (SSA).
Part B premiums can add up to significant dollars, especially for married
couples when they are being paid for both spouses.
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8. 3 Medicare Part C is for private Medicare Advantage health plan
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coverage, which is supplemental to government-provided Part A and
Part B coverage. Premiums vary depending on the plan. If you have Part
C coverage, you don't need Medigap coverage (described immediately
below).
4 Medicare Part D is for private prescription drug coverage. Premiums
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vary depending on the plan. Higher-income folks pay an "adjustment
amount" in addition to basic plan premiums. For 2012, the adjustment
amount can be up to $66.40 per month (up to $797 per covered
person). Adjustment amounts are withheld from your Social Security
benefits and will show up as an adjustment on Line 3 of Form SSA-1099,
which you should have received from the SSA.
5 Medigap Insurance is private supplemental insurance that functions as
5
an alternative to Part C coverage. Premiums vary depending on the
plan.
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9. Premiums for Qualified Long-Term Care Insurance
These premiums also count as medical expenses for itemized deduction
purposes, subject to the age-based limits shown below. For each covered
person, count the lesser of:
• Premiums paid in the applicable year or
• The applicable age-based limit.
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10. The age-based limits for 2012 and 2013 are listed below.
Premiums Paid in 2013
Max Amount
Age as of 12/31/13
Treated as Medical Expense
40 or under $ 360
41-50 680
51-60 1,360
61 to 70 3,640
Over 70 4,550
Premiums Paid in 2012
Max Amount
Age as of 12/31/12
Treated as Medical Expense
40 or under $ 350
41-50 660
51-60 1,310
61 to 70 3,500
Over 70 4,370
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11. Special Health Insurance Write-Off for Self-Employed Folks
Self-employed individuals who pay their own medical and dental insurance
premiums are generally allowed to deduct these costs "above the line" on
page 1 of Form 1040. This is a good deal because you need not itemize to
benefit from an above-the-line deduction.
More good news: You can deduct the cost to cover an under-age-27 adult
child, even if he or she does not qualify as your dependent.
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Toll Free : 877.880.4477
Phone : 281.880.6525
Fax : 281.866.9426
E-mail : info@hrp.net
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