Topic:
INCOME TAX; LONG-TERM CARE; MEDICAL CARE; TAX CREDITS;
Location:
TAXES - INCOME;

OLR Research Report


November 4, 2008

 

2008-R-0591

STATE INCOME TAX DEDUCTIONS FOR MEDICAL EXPENSES

By: Judith Lohman, Chief Analyst

You asked which states have state income tax deductions for medical expenses and what the deductions are.

The information in this report is based on a summary by the Wisconsin Legislative Fiscal Bureau of Individual Income Tax Provisions in the States (Informational Paper 4, January 2007). Since the Wisconsin report applies to the 2005 tax year, we updated the information by surveying state income tax forms and instructions for the 2007 tax year.

SUMMARY

Forty-one states and the District of Columbia have broad-based state personal income taxes. Of these, 35 allow taxpayers to deduct qualified medical expenses when calculating tax liability. Seven, including Connecticut, do not. Of the 35 states that have medical expense deductions, 20 have the same deduction allowed under the federal tax law and 15 have state deductions that vary from the federal deduction in one or more respects.

FEDERAL TAX DEDUCTION FOR MEDICAL EXPENSES

When calculating federal taxable income, a taxpayer may deduct eligible, unreimbursed medical and dental expenses that exceed 7.5% of the taxpayer's federal adjusted gross income (AGI). Deductible expenses include insurance premiums for medical and dental care other than premiums already deducted under the self-employed health insurance deduction. Deductible long-term care insurance premiums are limited based on age. The limits for 2007 were:

Age

Deduction Limit

40 or under

$ 290

41 to 50

550

51 to 60

1,110

61 to 70

2,950

71 and over

3,680

The limits apply to premiums for each person. The long-term care policy must also meet certain minimum standards.

STATE TAX DEDUCTIONS FOR MEDICAL EXPENSES

Thirty-four states and the District of Columbia have medical expense deductions in their state income taxes. Seven states do not. The remaining nine states have no broad-based state income taxes.

Of the states with medical expense deductions, 20 use the federal deduction with no change and 15 deviate from the federal deduction in certain respects. The most common differences are to (1) allow additional expenses to be deducted, (2) base the 7.5% exclusion on state rather than federal AGI, or (3) provide a 100% deduction or separate credit for qualifying long-term care insurance premiums. State deductions generally use federal definitions for determining which expenses are deductible.

Table 1 shows how each state treated medical expenses for purposes of its income tax in the 2007 tax year.

Table 1: State Income Tax Deductions for Medical Expenses

2007 Tax Year

(* = states with long-term care insurance tax credits)

State

Medical Expense Deduction

Alabama

Expenses exceeding 4% of AGI (long-term care premiums are fully deductible)

Alaska

No state income tax

Arizona

100% of medical expenses

Arkansas

Same as federal

California

Same as federal except medical expenses paid on behalf of a domestic partner are deductible.

Colorado*

Same as federal

Connecticut

None

Delaware

Same as federal

District of Columbia

Same as federal

Florida

No state income tax

Georgia

Same as federal

Hawaii

Expenses exceeding 7.5% of Hawaii AGI.

Idaho

Same as federal

Illinois

None

Indiana

None

Iowa

Same as federal except subtract expenses for the purchase of health benefits coverage or insurance if those expenses are exempted in determining Iowa net income.

Kansas

Same as federal

Kentucky

Expenses exceeding 7.5% of Kentucky AGI

Louisiana

None

Maine

Same as federal

Maryland*

Same as federal

Massachusetts

Expenses exceeding 7.5% of Massachusetts AGI

Michigan

None

Minnesota*

Same as federal

Mississippi

Same as federal

Missouri

Same as federal

Montana

Expenses exceeding 7.5% of Montana AGI

Nebraska

Same as federal

Nevada

No state income tax

New Hampshire

Income tax limited to interest and dividends only

New Jersey

Expenses exceeding 2% of New Jersey AGI

New Mexico

100% of medical expenses. Medical expenses for services provided by a medical doctor, osteopath, dentist, podiatrist, chiropractic physician, or psychologist must be provided by a person licensed or certified to practice in New Mexico. Taxpayers or spouses aged 65 or over who pay unreimbursed and uncompensated medical care expenses of $28,000 or more during tax year 2007 may claim an exemption of $3,000.

New York*

Same as federal except subtract amount paid for long-term care insurance premiums from medical expense total.

North Carolina

Same as federal

Table 1:-Continued-

State

Medical Expense Deduction

North Dakota

100% of medical expenses. In addition, the state allows a credit for qualified expenses for caring for a family member who is at least 65 years old or disabled and related to the taxpayer by blood or marriage. The family member claiming the credit must have an annual taxable income of no more than $15,000 if single or $30,000 if married, including the income of the member's spouse. A taxpayer whose taxable income is under $25,000 may claim 30% of qualified expenses. Taxpayers who earn more than $25,000 can claim the greater of 20% of the qualified care expenses or 30% of the expenses, less 1% of the expenses for each $2,000 or fraction thereof by which the taxpayer's taxable income exceeds $25,000. The credit is reduced by $1 for each $1 of taxable income that a taxpayer earns over $50,000 and is limited to $2,000 per family member per year or $4,000 for two or more family members. The credit is nonrefundable, may be prorated among several taxpayers, and may not be claimed as a carryback or carryforward.

Ohio

Same as federal except 100% of long-term care insurance premiums

Oklahoma

Same as federal

Oregon*

Same as federal, except taxpayers age 62 or over by the end of the tax year may exclude 100% of medical expenses.

Pennsylvania

None

Rhode Island

Same as federal

South Carolina

Same as federal

South Dakota

No state income tax

Tennessee

Income tax limited to interest and dividends only

Texas

No state income tax

Utah

Same as federal except 100% of long-term care insurance premiums

Vermont

Same as federal

Virginia

Same as federal

Washington

No state income tax

West Virginia

None

Wisconsin

Same as federal

Wyoming

No state income tax

JL:ts