No Healthcare, Less of a Problem

Millennials, amongst many others, are well-known for decrying America's healthcare system, comparing it to those in European countries where point-of-care costs are relatively minimal or non-existent. Those of us participating in the gig economy or working in the restaurant business in which employer-provided healthcare is scarce may feel particularly frustrated. However, while it won't solve the systemic problems of any nation's healthcare system, relief from daunting medical expenses is potentially available in the Internal Revenue Code. 

Assuming it is more financially beneficial for the taxpayer to itemize their deductions rather than electing the standard deduction, taxpayers can utilize IRC § 213 which allows a deduction for medical and dental expenses. Particularly appealing for those uninsured or underinsured is the fact that IRC § 213(a) specifically allows a deduction for medical expenses not covered by insurance. Therefore, taxpayers with particularly burdensome medical expenses during the taxable year can offset the added expense of an April tax payment by taking advantage of this section of the code. 

IRC § 213(d)(1)(A) defines the type of medical expenses eligible for a deduction as those "for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body." Elective and cosmetic medical procedures do not qualify for the deduction.

It should be noted that the amount of deductible medical expenses is limited in IRC § 213(f) to that amount which exceeds 7.5% of adjusted gross income for taxable years prior to January 1, 2021. This figure will revert back to 10% after January 1, 2021, when provisions of the Tax Cuts and Jobs Act expire. Adjusted gross income is defined under IRC § 62 and can be calculated based on the conditions thereunder. Essentially, adjusted gross income is equal to gross income less allowable deductions specified. Such deductions include trade and business expenses incurred by a taxpayer not consisting of services performed by the taxpayer as an employee. 

Despite the limitations on amounts deductible, the code can still be particularly beneficial for those with large medical bills and comparatively little income. Such scenarios are possible amongst many millennials reliant on tips or who are employed in unpaid internship positions in the hopes of obtaining more stable employment in the future. In the unfortunate circumstance that such individuals are faced with unexpected medical costs, this code section can provide welcome relief. But even where the allowable deduction is minimal, every dollar saved is better invested than spent.