IRS Releases Publications 502 and 503 for 2012 Tax Returns

IRS Releases Publications 502 and 503 for 2012 Tax Returns

The IRS released the latest versions of Publications 502 and 503 for use in preparing 2012 tax returns. Publication 502 (Medical & Dental Expenses) describes what medical expenses are deductible by taxpayers on their 2012 federal income tax returns.  Under Code § 213(a), a taxpayer may claim a deduction for certain unreimbursed medical expenses to the extent they exceed 7.5% of the taxpayer’s AGI (Adjusted Gross Income).  Note:  For the tax year beginning January 1, 2013 (as a result of PPACA, federal health care reform) deductions will need to exceed 10.00% of the taxpayer’s AGI in order to be deductible.

Publication 502 provides valuable guidance on what qualifies as a medical expense under Code § 213(d), and thus helps identify the expenses that may be reimbursed or paid by Health Care FSAs, HSAs, or HRAs, or covered on a tax-favored basis under other group health plans (e.g., an employer-sponsored major medical plan). But referring to Publication 502 in connection with these tax-favored benefits must be done with caution, because it addresses only the expenses that are deductible—it doesn’t describe the different rules for reimbursing medical expenses under Health Care FSAs, HSAs, or HRAs.

Publication 503 (Child and Dependent Care Expenses)  explains the requirements that taxpayers must meet in order to claim the dependent care tax credit (DCTC) under Code § 21 for child and dependent care expenses. Similar, but not identical, requirements must be met for expenses to be reimbursable under a DCFSA (Dependent Care FSA).

These 2012 Publications are substantially similar to their 2011 counterparts. Relevant dollar amounts (e.g., the standard mileage rate for use of an automobile to obtain medical care) have been revised to reflect their 2012 inflation-adjusted values. In addition, in Publication 502, the entry for “Trips” has been expanded to explain how the lodging expense rules apply when someone (e.g., a parent) is traveling with the person receiving medical care, and the explanation of the health coverage tax credit (HCTC) has been updated.

The 2012 version of Publication 503 no longer includes examples showing how to complete Form 2441 (Child and Dependent Care Expenses). However, an example has been added that illustrates how an employee with two qualifying individuals can exclude $5,000 of DCAP reimbursements and also take a partial DCTC based on $1,000 of additional dependent care expenses.  Note:  Publication 503 is written primarily to help taxpayers determine whether expenses qualify for the DCTC, and caution should be used when consulting it to determine which expenses are reimbursable under a DCFSA.

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