Although most of the provisions under the Tax Cuts and Jobs Act (TCJA) actually went into effect in 2018, there are two major changes that will impact individuals beginning in the 2019 tax year. Those two changes relate to the deduction of medical expenses and the tax treatment of alimony. Let’s take a closer look.
Medical Expense Deduction Threshold
For 2017 and 2018 the TCJA reduced the threshold for the deduction of medical expenses down to 7.5% of an individual’s Adjusted Gross Income (AGI). This meant that any qualified, unreimbursed medical expenses such as dental expenses, ambulatory services, hearing aids, etc., that rose above the 7.5% threshold could possibly be deductible. (Keep in mind medical expenses are only deductible if an individual is itemizing). But for 2019 the lower threshold has not currently been extended therefore reverting back to the 10% of AGI threshold. With the TCJA’s near doubling of the standard deduction in 2018 and this 2.5% increase in threshold of medical expenses for 2019, the benefits to itemize for many taxpayers is dwindling rapidly.
Tax Treatment of Alimony
Up until January 1, 2019 any individual that was paying alimony was able to deduct it and the individual receiving it was required to report it as income. (Note: this was only applied specifically to alimony. Child support has, and will continue to be, not taxable or deductible). However, under the TCJA, if a divorce agreement was executed (or a prior divorce agreement was modified) AFTER December 31, 2018, that alimony payment is no longer deductible by the ex-spouse paying it, nor is it required to be picked up as income by the recipient. This is a permanent change and will result in an overall higher tax paid on this money as the individual that is paying alimony will not qualify for a deduction.
Please contact your Faw Casson advisor if you have concerns about the medical expense deduction or the tax treatment of alimony — or any other changes that may affect you in 2019.