Health Care

Health Care

How do health care reform and taxes connect? The Affordable Care Act is single largest change to the tax code in two decades. Find help navigating the complexities of the new health care legislation, Medicare, Medicaid and other medical deductions.

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Pioneer
Posts: 1
Registered: ‎02-10-2017

1099R early distribution for medical expenses

How and where do I deduct medical expense? Took early distribution from 401K to cover medical expenses.

Is out of pocket paid expenses and does still owed count?

Council Member
Posts: 548
Registered: ‎04-06-2016

Re: 1099R early distribution for medical expenses

See page 24 of Pub 590-B to help determine the amount of your medical expenses that can be claimed as an exception to the 10% penalty for early withdrawals. The amount of your early distribution used for medical expenses that would not be subject to the early withdrawal penalty would be for the amount of medical expenses over 7.5% of your AGI. <https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri...>

 

Only medical expenses paid out of pocket in 2017 qualify. Those that you still owe do not.

 

If you determine that you have medical expenses over that limit, you can enter your medical expense exemption into the online program here:

Federal>Taxes> "Yes" to add additional info > Retirement and Investments> visit Retirement plan, IRA, and other plan penalties

 

On the next screen: 

If any of these situations applies to you, we’ll help you include them on your return:

Choose Add item.

 

Check the box for: I took money out of a retirement plan, IRA, annuity, or endowment contract before age 59 1/2, but might qualify for an exception to the penalty. What does this mean?

 

On the next screen you'll enter the amount that qualifies for the exclusion (the amount that's more than 7.5% of your AGI) in the box and then choose the 5-Medical expenses more than 7.5% of AGI option in the drop down list for "Reason penalty doesn’t apply."

 

Then continue.

 

In addition to claiming an exception to the penalty for early distribution from you 401k for your medical expenses (that over 7.5% of your AGI), you can also add your medical expenses as an itemized deduction which will benefit you if your total itemized deductions are more than your standard deduction. This deduction will also be limited to the amount that is more than 7.5% of your AGI, but it this case when you enter it into the program you will enter the full amount of your medical expenses that you actually paid in 2017. 

 

Karen