On March 6, 2019

Tax deduction on health expenses may be restored

By Anne Wallace Allen/VTDigger

Lawmakers in the House Ways and Means Committee are looking at restoring a deduction on health expenses that was removed from the tax code last year.

A proposal sponsored by Rep. Kate Webb, D-Shelburne, would restore the deduction, with the full amount that is deductible at the federal level allowed as a deduction at the state level.

Advocates for the chronically ill and the elderly told the committee Tuesday that restoring the deduction would help about 7,300 people who had seen their taxes increase dramatically this year, for many of them unexpectedly.

The bill, H.199, calls for the deduction to be restored retroactive to last year.

The cost to the state of making the change this year would be about $5.2 million, according to the Legislature’s Joint Fiscal Office (JFO), said Webb.

Webb said many people assume that last year’s tax change only affected the wealthy. But that’s not true, she said.

“This may be an assumption based on bias,” said Webb.  Webb said only 190 taxpayers who have income of more than $300,000 annually would be affected by the change. Among those earning less than $125,000 a year, about 4,000 taxpayers would be affected, Webb said.

Before 2018, when taxpayers could deduct medical expenses that were more than 7.5 percent of their adjusted gross income, that deduction applied to the Vermont return as well. But last year that changed. Vermonters still receive the deduction at the federal level.

Accountant Judy Hettena Wright estimated that the change will cost her about $3,000 in additional taxes every year. Wright has a genetic disorder called Ehlers Danlos, or EDS, that she said costs her $50,000 out of pocket each year.

“Unless the law is changed, this will be a permanent increase for me,” she told the committee. “As a result, I have already had to start reducing my non-insured medical care visits that help my body function and provide pain relief.”

Wright said her clients in assisted living are liable for about $4,000 more in taxes than last year.

“The thing I hope to get across today is the unintended consequences on this vulnerable population,” she said. “And it’s not a one-year increase; it’s a permanent increase that has to be taken into account on top of the medical expense budget.”

When asked by a member of House Ways and Means, Graham Campbell, an analyst at the JFO, said many states have a deduction for out-of-pocket health expenses similar to the one Vermont removed last year.

Advocates believe House Ways and Means removed the deduction without consulting the information they needed to make a sound decision, Shelburne resident Bob Ulrich told the panel.

“Despite our extensive reading of (Joint Fiscal Office) reports, and contacts with legislators, we continued to be bothered by the lack of evidence that the committees studied in any depth the impact of the removal of medical deductions on vulnerable populations,” said Ulrich.

Gov. Phil Scott said, “This was an area that I believe was maybe overlooked…we’ve heard a lot of concerns there, and I believe they are founded. We want there to be fairness across the board.”

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