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jlmgc699
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If you itemize medical expenses, and they are high - why no refund?

Is there a point where they are too high?
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1 Best answer

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If you itemize medical expenses, and they are high - why no refund?

Medical expenses are only an itemized deduction - they don't directly give you a refund of the expenses paid, they just lower your taxable income.  So, if you saw no benefit from your medical expenses, then there are two likely explanations.

(1)  Medical expenses are subject to a high threshold - for 2017, you can only deduct the amount that is over 7.5% of your AGI.  This amount becomes an itemized deduction, so you still need to have more total itemized deductions than the standard deduction to see any tax benefit (standard deduction is $6,350 for single and $12,700 for MFJ).

Example:  You have AGI of $50,000, making your 7.5% threshold $3,750.  This means that if you had medical expenses of $10,000 - you would only be able to take a deduction for $6,250.  And, even here, you would still need more total itemized deductions because the amount is still below the standard deduction. 

(2)  If you did have high medical expenses, then it might be more likely that you just don't have any further tax liability.  Again, itemized deductions, such as medical expenses, can only reduce your taxable income.  They won't provide you with a direct refund.  So, you can easily reach a point where between all your other deductions, exemptions, and credits, you simply may not have any further tax liability to reduce.  Thus, you won't see any further tax benefit from your deductions in these situations. This can often be the case when you have tax credits, such as the Child Tax Credit, that eat up a lot of your tax liability.

Example:  You are married and have $40,000 in income, a 10% tax rate, and 2 children.  And, you have $20,000 in medical expenses.  Before applying the medical expenses, you would have a standard deduction of $12,700 plus 4 personal exemptions of $4,050 each for a total deduction of $28,900.  This leaves you with only $11,100 in taxable income and $1,110 in tax liability (10% rate).  But, since you have two children, the Child Tax Credit wipes away that tax liability.  This means you would have no tax liability for medical expenses to reduce any further.  So, even though you have $20,000 in medical expenses in this scenario, you wouldn't see any further increase in your refund by adding them.

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1 Reply

If you itemize medical expenses, and they are high - why no refund?

Medical expenses are only an itemized deduction - they don't directly give you a refund of the expenses paid, they just lower your taxable income.  So, if you saw no benefit from your medical expenses, then there are two likely explanations.

(1)  Medical expenses are subject to a high threshold - for 2017, you can only deduct the amount that is over 7.5% of your AGI.  This amount becomes an itemized deduction, so you still need to have more total itemized deductions than the standard deduction to see any tax benefit (standard deduction is $6,350 for single and $12,700 for MFJ).

Example:  You have AGI of $50,000, making your 7.5% threshold $3,750.  This means that if you had medical expenses of $10,000 - you would only be able to take a deduction for $6,250.  And, even here, you would still need more total itemized deductions because the amount is still below the standard deduction. 

(2)  If you did have high medical expenses, then it might be more likely that you just don't have any further tax liability.  Again, itemized deductions, such as medical expenses, can only reduce your taxable income.  They won't provide you with a direct refund.  So, you can easily reach a point where between all your other deductions, exemptions, and credits, you simply may not have any further tax liability to reduce.  Thus, you won't see any further tax benefit from your deductions in these situations. This can often be the case when you have tax credits, such as the Child Tax Credit, that eat up a lot of your tax liability.

Example:  You are married and have $40,000 in income, a 10% tax rate, and 2 children.  And, you have $20,000 in medical expenses.  Before applying the medical expenses, you would have a standard deduction of $12,700 plus 4 personal exemptions of $4,050 each for a total deduction of $28,900.  This leaves you with only $11,100 in taxable income and $1,110 in tax liability (10% rate).  But, since you have two children, the Child Tax Credit wipes away that tax liability.  This means you would have no tax liability for medical expenses to reduce any further.  So, even though you have $20,000 in medical expenses in this scenario, you wouldn't see any further increase in your refund by adding them.

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