Posted: Oct 17, 2005 By: Peter Russo, CPA

Subject: Taxing Medical Benefits

Comment: Individuals who have annual medical bills ARE NOT ABLE TO DEDUCT 7.5% of their income from the individuals Total Taxable income for the Year.
This means that someone who earns say $50,000 annually and pays $10,000 for medical insurance and Doctor bills etc CANNOT DEDUCT $3,750 from His/Her Tax return. This is Law right now.
That same Individual who has his medical paid by the employer Gets to deduct ALL of his/her $10,000 from the $50,000 earnings.

Our system is currently Very unfair to those who do not have a job or on retirement and pay their medical out of pocket.
One side or the other needs to be corrected.
The non-taxability compound affect is really magnified with this example:
2 Individuals have $50,000 income.
Indiv 1 works and gets $10,000 medical paid and $40,000 W-2.
Indiv 2 works or is retired and pays own medical of $10,000. Reports $50,000 income and deducts only $6,250 medical.
(7.5% of $50,000 not allowed)

Indiv 1 Indiv2
Earns $50,000 Earns $50,000

Pays income tax on Pays income tax on
only $40,000 $43,750

The additional tax on Individual #2 is $700 more than Individual#1
It is time to correct this inequity.
There is absolutely no justifiable reason to tax 2 individuals differently solely based on MEDICAL OUTLAYS.

Hope to hear your thoughts on my observations.
I can certainly contribute much more on other improvements.

Peter Russo, CPA
St Louis, MO