For people facing costly medical bills, there's some good news in the final version of tax-overhaul legislation unveiled on Friday.
Instead of eliminating the deduction for medical expenses as proposed in an earlier version of the sweeping legislation, the bill actually expands the deduction for two years.
All taxpayers who itemize their deductions would be able to write off qualifying medical expenses that exceed 7.5 percent of their adjusted gross income for tax years 2017 and 2018. After that, the threshold would return to the current 10 percent.
The bill might be voted on as early as next week in both the House and Senate. If both chambers pass the final version, the measure will head to President Donald Trump for his signature.
People age 65 and older already have been using the lower threshold for years: Before the Affordable Care Act of 2010, all taxpayers used the 7.5 percent amount. The health care reform legislation raised the threshold to 10 percent for everyone in 2013 except that group of older taxpayers.
The exclusion, however, was scheduled expire after tax year 2016, meaning the tax bill effectively extends it for two years and allows younger taxpayers to take advantage of it.
While the medical-expense deduction is one of the few tax breaks for individual taxpayers retained in the bill, it's important to remember it's only available to those who itemize. And for itemizing to make financial sense, the value of all your deductions need to exceed the standard deduction.
Under the bill, the standard deduction would nearly double for all taxpayers before returning to current law in 2026. That means starting next year, an individual would need their total deductions to exceed $12,000, the tax bill's new standard deduction for individual taxpayers, up from the current $6,350.
Married couples filing jointly would need deductions worth more than their new standard deduction of $24,000 under the bill, which is up from $12,700 for 2017; for heads of households it's $18,000, up from $9,350 this year.
About 49 million taxpayers, or 28 percent, currently itemize, according to the Urban-Brookings Tax Policy Center. If the bill is approved, it's likely even fewer taxpayers would do so.
About 8.8 million Americans used the medical expense deduction in 2015, saving themselves an aggregate $86.9 billion. Nearly half of them (49 percent) had annual income below $50,000 and 69 percent had income under $75,000, according to the AARP's Public Policy Institute.
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