In her retirement community in Chestertown, Md., it’s the big topic of conversation.
Hammer is 71. Like many seniors, her medical bills are piling up. There are doctor visits, insurance premiums, drugs, a colonoscopy, a heart scan, an unexpected trip to the emergency room that lasted three days, ongoing monitoring for breast and ovarian cancer that run in her family and the costs of medical staff at her retirement community. Her out-of-pocket medical expenses vary, but she estimates they are about $20,000 a year.
Under current law, she can take a big medical deduction on her taxes. Last year, she was able to reduce her total taxable income by $16,000 because of the medical deduction alone, saving her over $3,000 on her tax bill.
The House tax bill would eliminate the deduction, while the Senate bill would keep it (and even make it a bit more generous). It’s a key difference that must be reconciled before the final legislation goes to President Trump.
“I have enough money to last until I’m 95,” says Hammer, who has carefully saved for decades. “But if I have to pay that much more in taxes, I might run out of money by 85.”
An ‘extraordinary’ deduction
The medical deduction started in 1942 to help Americans deal with what lawmakers at the time called the “extraordinary” costs of medical care, the kind that hit when someone in the family has cancer or needs round-the-clock care. Currently, anyone can deduct medical expenses that account for more than 10 percent of their adjusted gross income (income minus certain adjustments). The Senate bill would expand that to 7.5 percent of income for this year and next.
In 2015, 8.8 million Americans used the deduction. Over half were older than 65, according to AARP.
As soon as Hammer, a former university administrator and MetLife compliance manager, read about the House plan, she realized it would alter not just her taxes, but possibly her life. She has income from Social Security, a modest pension and private retirement accounts. She pulls in about $55,000 a year, enough to pay for her retirement community and her medical bills.
But if she loses the medical deduction, her taxable income would jump — and so would her taxes. Her home state of Maryland bases its taxes off the federal ones, so losing the medical deduction at the federal level would lead to more taxes at the state level as well. The more money that goes to taxes, the less she has to live on later in life.
“It’s very, very scary,” says Hammer. It would be even worse if her medical costs go up. She already anticipates eye surgery and a dental procedure next year.
Trump promised that the middle class would be better off under his plan, but scrapping this deduction hits some in that group. Nearly 70 percent of the people claiming the deduction made $75,000 or less, according to AARP.
“This isn’t a high-income deduction,” says Cristina Martin Firvida, director of financial security and consumer affairs at AARP, which has been running ad campaigns to urge Congress to keep the deduction.
A ‘very important’ issue
House Republicans had previously argued that their tax overhaul would be so beneficial to families that individual provisions such as the medical deduction would no longer be necessary. But more recently, they have acknowledged the significant impact of eliminating this particular tax break.
Rep. Kevin Brady (R-Tex.), the lead author of the House bill, said last week that the medical deduction is on his radar heading into the conference committee because many of his fellow GOP lawmakers have contacted him about it.
“That issue is being raised a lot by our lawmakers as very important,” Brady said.
Eliminating the medical deduction raises $10 billion a year — about 7 percent of the cost of reducing the tax rate for corporations from 35 percent to 20 percent, as the tax overhauls do.
‘Freaks me out’
Losing the deduction is especially burdensome for families caring for someone with a chronic disease. Cecilia “Sis” Tunnell is 88 and has Alzheimer’s. Her daughter Mary Pagel runs a thriving accounting practice in San Luis Obispo, Calif., and moved her mom to a nursing home nearby. The facility, specialized care and a nurse cost over $130,000 last year, a hefty sum the family can pay because of years of careful planning.
Pagel handles her mother’s taxes and estimates that Tunnell would go from paying about $23,000 in taxes last year to paying more than $50,000 if the House plan went into effect and the medical deduction went away, because her mother’s taxable income would jump by six figures.
Many other clients of Pagel’s have been calling her with similar concerns. It alters the math dramatically, even for families that have saved for years to fund top-notch care that doesn’t rely on the government.
“It freaks me out,” says Pagel. “The costs of medical care are not going to go down, and you just don’t know how long someone will need care with Alzheimer’s or another chronic illness.”
‘Victim of an accident’
While most of the focus has been on the elderly, Americans of all ages would be affected if the tax deduction is lost.
Randy Sherfy was a former college athlete and a rising star at a law firm when he left his home on a Saturday morning in 1992 to go on a bike ride with friends. A driver hit him a few miles from his home. He was 41.
Many surgeries later, his body has been mostly repaired, but Sherfy never recovered from the brain injury. He has been living in a trauma care facility in Texas that costs over $60,000 a year. He pays for it from income from a settlement with a driver and from disability insurance he had from his law firm.
His brother, an accountant in Austin, estimates Sherfy’s taxes would go up substantially without the medical tax deduction. In most years from 2007 to 2014, he paid almost no taxes because of the medical deduction, his brother says. Under the House bill, he would suddenly have taxable income of $60,000 a year.
About a quarter of people who claim the medical deduction are younger than 50, according to AARP.
“Most of the people in nursing homes don’t have a lot of choice of how they’re spending their dollars,” says Joe Sherfy, Randy’s brother. “He was the victim of an accident.”
Correction: An earlier version of this story misstated Cecilia Tunnell's tax bill last year.