For many North Carolina residents, the tax reform passed by state lawmakers two years ago was a mixed bag.
Income tax rates were lowered across the board, but to help pay for the reduced state revenue brought about by the changes, the General Assembly repealed a number of deductions, including the medical deduction for senior citizens.
Rep. Rick Catlin, R-New Hanover, said a number of New Hanover County residents let him know how the tax change hurt them. His two-year effort to reinstate the deduction succeeded, and the new deduction will benefit residents regardless of age.
“If you’re going to lower people’s taxes, you don’t raise costs for people who have medical expenses,” Catlin said.
Republicans arrived in Raleigh intent on lowering taxes. Many favored cutting tax rates across the board and getting rid of deductions.
For some senior citizens, losing the medical deduction produced a hardship. Many legislators missed the provision during last-minute budget and tax negotiations.
“I would say the majority of representatives did not know about that medical deduction being eliminated,” Catlin said. “I did not know about it.”
The provision was removed as part of last-minute budget negotiations in 2013 and took effect for the 2014 tax year.
But if Catlin and his fellow lawmakers weren’t aware of the change at the time, their constituents certainly found out about it once they started preparing income tax returns for 2014.
Removing the deduction meant the loss of a significant tax benefit for some people with high medical expenses. Previously, North Carolina residents 65 and older had been able to deduct their out-of-pocket health care costs. Medicare pays 80 percent of most expenses, leaving the patient to pick up the rest.
In addition, the measure could hurt the state’s economy in the future, Catlin said.
“It would have a huge economic impact on North Carolina if senior citizens looking to retire here thought we were not friendly to them,” he said.
His effort to restore the deduction last year failed, but this year he and fellow Reps. Julia Howard, R-Davie, and Chris Whitmire, R-Transylvania, got help from an influential voting bloc: the state’s older residents.
“The senior citizens of North Carolina worked together very well to make their representatives and senators aware of that problem,” he said.
They also kept the pressure on throughout the session, as did AARP’s North Carolina chapter.
“What really sparked it was when we saw the historic preservation taxes were back on the table,” said Charmaine Fuller Cooper, advocacy director for AARP North Carolina.
Most lawmakers were steadfast in refusing to undo the previous year’s tax changes when Catlin unsuccessfully sought to reinstate the deductions last year, she said. But when the legislature reconsidered the preservation tax credits, it also opened the door to reinstate and expand the medical deduction.
The measure passed, and will apply to 2015 income tax returns. An effort to make the change retroactive to 2014 was unsuccessful.
Residents who spend more than 10 percent of their income on health care expenses will be eligible for the deduction, Cooper said.
It was important to include residents younger than 65 because “health care expenses don’t discriminate by age,” she said.