The proposed increase in the standard deduction and decrease in the tax rate is simply not enough to make up for the loss of the medical expense deductions.
“Ultimately, the effect of the proposed tax bill on the elderly and chronically ill is severe.”
Lucy, an 80-year-old woman in a memory care facility, pays for her monthly expenses, $5500, out of her IRA. She then deducts these monthly expenses on her tax return, easing her tax burden and allowing her to pay for her own care for as long as possible.
Mr. Smith’s parents have chronic illnesses that require medical care not covered by their Medicare plans. His parents are on a fixed income and the only way they are able to remain at home is that Mr. Smith helps by paying over half of his parents’ medical expenses. The only way he is able to help out is because he is can deduct these medical expenses from his yearly taxes, easing the burden of helping their parents.
These deductions will be removed.
But if the tax reform bill introduced last week passes as is, the deduction these people rely on will be gone. Because Lucy will lose this deduction, she will be paying taxes on the the distributions she uses for her care. As a result, her funds will be depleted much faster, forcing her to move to another facility or to moved to skilled nursing and seek Medicaid benefits. If Mr. Smith loses the deduction, he will no longer be able to afford to help his parents, and they may no longer be able to stay at home.
The current tax reform bill released last week does away with these line item deductions and could devastate the people who are paying for their own care. Eliminating the medical expense deduction puts chronically ill people between a rock and hard place. The proposed increase in the standard deduction and decrease in the tax rate is simply not enough to make up for the loss of the medical expense deductions. Medical expenses and expenses for assisted living will far exceed the standard deduction leaving residents with either a tax bill they cannot pay or living expenses they cannot pay. The ultimate result is that elders like Lucy who have planned well for their own long-term care will run out of money quicker and end up having to rely on Medicaid and other public benefits.
These changes affect everyone.
And this bill will not only affect the elderly and chronically ill, it will also affect families who contribute to their loved one’s care. As it stands now, a child paying for at least half the cost of medical expenses for a parent can deduct those expenses. The new tax reform bill eliminates this deduction as well, increasing the burden on Mr. Smith and potentially eliminating the ability for him to help his parents.
Ultimately, the effect of the proposed tax bill on the elderly and chronically ill is severe. Caring for loved ones as they age becomes more financially burdensome by the day. The proposed tax reform bill does nothing but increase the burden on elderly, the chronically ill, and their families and potentially increases the burden on public benefits.
Read more about the devastating effects of the proposed tax reform bill here: