Special Oregon Medical Subtraction

(a) Otherwise deducted in the calculation of Oregon taxable income for any tax period; or

(b) Paid on behalf of any other individual who is not an eligible taxpayer or eligible spouse of the taxpayer under ORS 316.693. Example 1: Sam (age 66) and Rebecca (age 60) file a joint return and claim Rebecca’s 80-year-old mother as a dependent. During the year, Sam and Rebecca paid $4,000 in medical and dental expenses: $1,000 for Sam, $1,000 for Rebecca and $2,000 for Rebecca’s mother. Sam’s medical expenses are the only medical expenses that qualify for the special Oregon medical subtraction because Rebecca does not meet the age requirement and Rebecca’s mother is a dependent. Example 2: Shannon and Dustin, both age 66, file a joint return with Oregon itemized deductions. During the year, Shannon and Dustin paid $18,900 in unreimbursed medical and dental expenses: $6,900 for self-employed health insurance premiums (claimed on the front of Form 1040), $10,000 for health insurance for two employees (claimed on Schedule C), and $2,000 of unreimbursed medical and dental expenses (claimed on Schedule A, line 1). Only the medical and dental expenses on Schedule A, line 1 ($2,000) can be used in the calculation of eligible expenses for the special Oregon medical subtraction because deduction for the self-employed health insurance was already used in the calculation of Oregon taxable income and employee insurance is not an eligible expense.

(2) Calculation of Eligible Expenses.

(a) General rule. The general rule is that if the expenses can be attributed to a particular individual, only that individual can claim those expenses. Example 3: Mary (age 59) and Steve (age 66). Mary and Steve each have their own insurance policy and do not cover each other on the individual policies. Mary’s premium is $350 per month and Steve’s premium is $400 per month. The only expenses that are eligible to be considered for this subtraction are Steve’s premiums, ($4,800). Depending on his income and the portion of Steve’s premiums already included in itemized deductions on Schedule A, Steve may claim up to $1,800 as a special Oregon medical subtraction.

(b) Expenses that cannot be attributed to a particular individual. A taxpayer that cannot determine to whom the expense is attributable must prorate the expense using a method that is reasonable based on the taxpayer’s particular facts and circumstances. Common examples of expenses that are not attributable to a particular individual include, but are not limited to, medical, dental or long-term care insurance premiums. Depending on the facts and circumstances, reasonable methods of proration for such expenses may include:

(A) Dividing the eligible expenses that are for more than one person by the number of individuals covered by the policy.

(B) In the case of spouses filing separate returns, splitting any eligible expenses paid out of a joint checking account in which the taxpayer and the taxpayer’s spouse have the same interest equally, unless you can show otherwise. Example 4: Branden (age 66) and Natalie (age 61) file a joint return with Oregon itemized deductions and three dependent children. During the year, Branden and Natalie paid $19,380 in medical expenses: $16,600 in health insurance premiums for a plan that covered Branden, Natalie, and all three children; $500 in dental expenses for Branden; $1,500 in medical expenses for Natalie; and $780 in medical and dental expenses for the children. Natalie and the children‘s medical and dental expenses do not qualify for this subtraction because Natalie does not meet the age requirement and the children are dependents. For Branden and Natalie, a reasonable method to calculate the joint expenses attributable to Branden is to divide the total health insurance premiums paid ($16,600) by the number of insured (5) to arrive at $3,320 for Branden’s portion of the joint expenses. Add the additional medical expenses attributable to Branden, $500, to arrive at a total of $3,820 of eligible expenses.

(3) Taxpayer who itemizes deductions. If a taxpayer has already claimed a portion of the eligible expenses as an itemized deduction on federal schedule A, line 4, the taxpayer must make an adjustment for those eligible expenses already deducted. Only medical and dental expenses for an age-qualifying taxpayer that are not already deducted in the calculation of Oregon taxable income are eligible for the subtraction. The taxpayer must prorate medical and dental expenses included in itemized deductions to determine what portion is eligible for this subtraction. Example 5: Jeff and Maggie, both age 64, file a joint return with Oregon itemized deductions and federal Adjusted Gross Income (AGI) of $55,000. Jeff and Maggie also claim Maggie’s 84-year-old mother as a dependent. During the year, Jeff and Maggie paid $12,300 in unreimbursed medical and dental expenses: $3,400 for self-employed health insurance premiums (claimed on the front of the 1040), $1,200 for Jeff, $4,200 for Maggie, $1,500 for Maggie’s mother, and $2,000 in long-term care insurance premiums for Jeff and Maggie. Jeff and Maggie deduct the entire self-employed health insurance premiums on the federal return; therefore, they do not include those expenses in the calculation of the subtraction. They can only include the $8,900 of medical expenses claimed on Schedule A, line 1, to calculate the subtraction ($1,200 for Jeff, $4,200 for Maggie, $1,500 for Maggie’s mother, and $2,000 in long-term care insurance premiums for Jeff and Maggie). For Jeff and Maggie, a reasonable method to calculate their joint expenses is to divide by two the total long-term care insurance premiums paid ($2,000) to arrive at $1,000 for each individual. Add the additional medical expenses attributable to Jeff and Maggie to arrive at total eligible expenses before calculating the subtraction. Jeff’s expenses total $2,200 ($1,200 + $1,000) and Maggie’s expenses total $5,200 ($4,200 + $1,000). Jeff’s expenses claimed on the Schedule A are 24.7% of the total expenses ($2,200 divided by $8,900). Maggie’s expenses claimed on the Schedule A are 58.4% of the total expenses ($5,200 divided by $8,900). Jeff and Maggie could not deduct $5,500 of their expenses on Schedule A because of the AGI limitation. Jeff’s portion of the expenses that were not deducted are $1,359 ($5,500 x 24.7%; rounded). Maggie’s portion of the expenses that were not deducted is $3,212 ($5,500 x 58.4%). Based on their federal AGI, each of their expenses may not exceed $1,400 for this subtraction. Jeff’s expenses are less than the limit, so his subtraction is limited to $1,359. Maggie’s expenses are more than the limit, so her subtraction is $1,400. They will claim a $2,759 special Oregon medical subtraction on their return.