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flstf · 01-22-2007, 09:14 AM

Quote:

Originally Posted by host

flstf, according to the 2006 tax prep. IRS guidelines:

http://www.irs.gov/publications/p502/ar02.html

If you pay $6k annually out of pocket with net income dollars, and you make $40k per year, you can deduct the excess of 7-1/2 percent of your adjusted gross income. If you have a file your tax return with a family of 3 standard deduction, for simplicity's sake, I'll use a round number of a $30k adjusted gross, defined as adjusted by subtraction of $10k standard deduction.

$30k X 7.5 percent= $2250. $6000 medical insurance expense, less $2250 equals $3750 eligible for deduction from taxable adjusted gross income.

This adjustment, coupled with, for example, with $6000 of deductible mortgage interest, $2000 deductible property tax, $300 deductible vehicle tax, $500 deductible charitable donation expense, and your total deduction could then exceed the original $10,000 standard deduction,
$6000 + $3750 + $2000 + +500 + $300, and now your total deductions are $12,500 instead of the original $10,000 standard deduction.

Deductions for medical treatment co-pay expenses, prescription expenses, transportation expenses, tax preparation fees, originally ineligible because the $40k annual earner could not "beat" the $10k standard deduction, become eligible when the $3750 medical insurance premium deduction allows the taxpayer to exceed the original $10k standard deduction.

To sum it up, under the current taxation structure, the "little guy", with a modest income and deductions formerly too small to exceed the standard deduction, receives income tax reduction on a significant portion of his out of pocket medical premium expense.

The purpose of the "standard" deduction allowance is to simplify tax filing and the "standard" includes consideration of "average" deductions for a single or a couple with "X" number of child dependents and an average size mortgage interest and property tax deduction, or a renter with a similar income.

So, there is already an allowance for payment of some medical and medical insurance expenses factored into the standard deduction tax tables.
---snip---

That's my point I think. Shouldn't a person who buys their own insurance be able to deduct from their income the total amount like those with employer furnished insurance instead of just a portion?

I can tell you from experience, my wife and I with modest income have never been able to satisfy the 7 1/2 percent requirement for the partial deduction. I have family members who make much more and pay no taxes on their employer provided insurance benefit simply because it is not considered income for tax purposes.

I agree that the tax system and medical insurance (healthcare) are pretty messed up but it seems only fair to treat employer furnished and personally purchased insurance the same for tax purposes. I think Bush's proposal at least attempts to do this.

As a side note: Those who purchase their own insurance usually already have to pay more for the same coverage because they are not part of a negotiated group like most employers have.