Recent Tax Changes You Should Know

The IRS has been busy the last few months. Some of its work is of special interest to people in or near retirement.

Recently, the IRS ruled that the health portion of genetic-testing kits qualifies as medical care under the tax code. Typically, part of the report from a genetic-testing kit summarizes a person’s ethnic or geographic heritage. The other part of the report lists diseases or conditions the person might be genetically predisposed to incurring. The IRS guidance means buyers of the kits can deduct a portion of the cost as a medical expense on Schedule A of Form 1040 or use tax-qualified money, such as funds held in health savings accounts or employer flexible spending accounts, to pay part of the purchase price.

The ruling was issued to the maker of the 23andMe testing kit. The company told The Wall Street Journal that up to $117.74 of the $199 cost of its health-and-ancestry kit qualifies as medical care under the new IRS rule. Following the guidance, some tax experts are arguing that part of the cost of smart watches and smart phone health apps should qualify as medical expenses under the tax code.

These devices often monitor various bodily conditions, such as heart rate and blood pressure, and provide other health-related feedback. The IRS hasn’t ruled that way, but its reasoning for genetic-testing kits logically seems to apply to part of the cost of the electronic aids.

In other action, the IRS expanded the definition of preventive care under high-deductible health plans (HDHP).

Contributions can be made to a health savings account by or on behalf of a taxpayer only if the taxpayer’s medical insurance qualifies as an HDHP. Under an HDHP, the taxpayer has to pay for all medical expenses other than preventive care until the annual deductible amount is spent.

The IRS recently expanded the definition of preventive care to include medical services and drugs for certain chronic illnesses. The medical insurance can cover all or part of these costs now from the first dollar without regard to how much of the annual deductible the taxpayer has paid.

Preventive care under the new guidance includes statins for heart disease or diabetes, blood pressure monitors for hypertension, beta blockers for congestive heart failure, some serotonin reuptake inhibitors for depression, some screening for diabetes and other expenses. Details are in IRS Notice 2019-45, which can be found on the IRS website at www.irs.gov. The IRS guidance only states the medical insurance may treat these costs as preventive care that is not subject to the deductible. It doesn’t state the insurance has to do that.

In another development, there’s going to be a new tax return designed specifically for seniors.

Taxpayers ages 65 and older will have the option to complete 1040-SR instead of the standard 1040. The IRS released a draft of the new form. The lines on the return and the schedules are the same as the regular 1040. The new form uses larger type and has other visual changes that should be easier for 65 and older taxpayers to read. There’s also a chart of the standard deduction amounts on the form itself, so taxpayers don’t have to look for the amount in the form’s instructions.

Eligible taxpayers will be able to choose to use either the new 1040-SR or the traditional 1040. There’s no requirement to use the new form. The new form is expected to be issued in time for use in the upcoming 2019 tax year filing season.