Taxpayers who are hearing aid users may wonder what the effects would be if Congress passes the Hearing Aid Assistance Tax Credit Act. Backers believe that it could become the decade’s most financially beneficial legislation for hearing-impaired taxpayers and signal the beginning of broader income tax support for people who purchase hearing technology. On a more individual basis, it could provide limited but welcome tax relief for an estimated two million Americans annually.
Credit U.S. Rep. Jim Ryun for authoring the House version, H.R. 3103, and Sen. Norm Coleman for introducing its companion bill, S. 2055. Ryun co-chairs the Congressional Hearing Health Caucus and Coleman is a member so their actions are clearly based on conviction.
The bill would allow people who are 55 or older or parents of a hearing-impaired dependent child a $500 tax credit per hearing aid purchase once every five years. Currently, hearing aids can be deducted with certain limitations as medical or impairment-related work expenses. The proposed legislation would apply to the same purchases but clearly precludes taking both the deduction and credit, empowering the Internal Revenue Service to disallow “double dipping.”
When it comes to saving money on taxes, there is a big difference between a deduction and a credit. A deduction reduces taxable income and the tax owed is then based on the lower income amount. Credits are subtracted directly from the tax owed. In general, a credit is more advantageous but in some cases, taking the deduction may be in your favor. The only way to know for sure is to do the math.
Let’s look at an example of how the new legislation would apply if it is passed and becomes effective for the 2003 tax year as provided in its current language.
Our taxpayer is a single individual over 55 who earns a salary of $60,000. In addition, she has interest and dividend income of $3,000 and itemized deductions (i.e., mortgage interest and charitable
contributions) of $10,000. Before adjustments, her tax due for 2003 is $9,304.
Scenario 1: The taxpayer buys a hearing aid for $1,500 and she can justify this purchase as an impairment-related work expense. Since this means that it is not subject to the same 2 percent of gross income limit as other work expenses, she can add the entire cost of the aids to her itemized deductions. This raises her total deductions to $11,500, reducing her tax to $8,929, a savings of $375. Alternately, under the proposed credit, our taxpayer could take $500 off her tax due, decreasing it from $9,304 to $8,804. Taking the credit instead of the deduction saves our hearing aid consumer $125.
Scenario 2: The taxpayer buys a hearing aid for $2,000, also eligible for full deduction as an impairment-related work expense. The new deduction total of $12,000 would reduce the tax to $8,804, a savings of $500, the same as if she took the proposed credit.
Scenario 3: The taxpayer buys a hearing aid for $2,500, again eligible for full deduction. This raises deductions to $12,500, resulting in a tax of $8,679, lower than the $8,804 tax that comes from using the hearing aid purchase as a credit. Our taxpayer saves $125 by taking a deduction rather than the credit.
Filers who cannot claim hearing aid purchases as an impairment-related work expense, like parents buying aids for their children, can claim the costs as medical expenses but they can be deducted only if the family accumulates $4,725 in other medical expenses. For these parents, taking the credit in the pending legislation would likely be more beneficial.
By excluding adult hearing aid wearers younger than 55, the Hearing Aid Assistance Tax Credit Act is not as inclusive as it could be but what it offers is better than no tax credit at all. At press time, H.R. 3103 and S. 2055 are still in committee and desperately in need of more support. Time for legislative action is running short since the 108th session adjourns in November. Call or write your congressional representatives today, urging them to get behind the bills, or go to www.wchh.com, click “Take Action,” then “Online Advocacy.” Enter your zip code next to “Elected Officials” and hit “with one click.” An email box will appear. Enter “H.R. 3103 and S. 2055” as the subject and “Please support H.R. 3103 and S. 2055” as the message. Fill in the required information and hit “Submit.” As a result of your action, millions of Americans could be a little bit better off ... including you.
“Money Matters” is written by Robin Gordon, C.P.A., managing director of Salus Group LLC, an accounting firm. Please contact her at info@hearinghealthmag.com.
