Effect of the Subtraction For Medical Care Insurance On The Itemized Deduction Credit

Subject to certain limitations, Wisconsin law allows a subtraction when computing Wisconsin taxable income for the amount paid for medical care insurance.

Wisconsin law also allows an itemized deduction credit. This credit is equal to 5% of the amount by which certain federal itemized deductions exceed the Wisconsin standard deduction. The federal itemized deduction for medical expenses is one of the deductions used in the computation of the Wisconsin itemized deduction credit.

In order to avoid a double benefit, the amounts claimed for the Wisconsin subtraction for medical care insurance cannot be used in the computation of the itemized deduction credit. Because the federal itemized deduction for medical expenses must be reduced by 7.5% of the taxpayer's federal adjusted gross income (AGI), there is a question as to how to determine the portion of the medical expense deduction that can be used for the Wisconsin itemized deduction credit when a person deducts both medical care insurance and other medical expenses.

Four steps are needed to figure the amount of medical expenses that can be used when computing the Wisconsin itemized deduction credit.

Step 1 Use the following formula to allocate the federal Schedule A deduction.

Amount paid for
medical care insurance
Total medical expenses             X
before 7.5% of
federal AGI limit

   Medical deduction
   after reduction
   for 7.5% of          =
   federal AGI

Portion of medical expense
deduction due to medical care insurance

Step 2 Subtract the amount determined in Step 1 from the medical expense deduction after reduction for 7.5% of federal AGI. This is the portion of the federal itemized deduction for medical expenses that is due to medical expenses other than medical care insurance.

Step 3 Subtract the amount of your Wisconsin subtraction for medical care insurance from the amount determined in Step 1. The remaining amount, if any, can be used for the credit.

Step 4 Add the amounts determined in Steps 2 and 3. This is the amount of the federal itemized deduction for medical expenses that can be used when computing the Wisconsin itemized deduction credit.

Example:

Your itemized deductions for medical expenses on federal Schedule A are as follows:

     Medical care insurance       $10,000
     Other medical expenses         4,000
     Total medical expenses        14,000
     Less 7.5% of federal AGI       3,000
     Allowable deduction           $11,000

Your Wisconsin subtraction for medical care insurance is $6,667.

You may use $4,333 as medical expenses when computing the Wisconsin itemized deduction credit determined as follows:


Step 1  $10,000  x $11,000  =  $7,857
           $14,000

(portion of the federal itemized deduction for medical expenses due to medical care insurance)

Step 2  $11,000  -  $7,857  =  $3,143 (portion of the federal itemized deduction for medical expenses due to other than medical care insurance)

Step 3  $7,857  -    $6,667  =  $1,190 (amount of the federal itemized deduction for medical care insurance that can be used for the itemized deduction credit)

Step 4  $3,143  +    $1,190  =  $4,333 (amount of the federal itemized deduction for medical expenses that can be used when computing the Wisconsin itemized deduction credit)

(Note For additional examples, see page 29 of the July 2002 Wisconsin Tax Bulletin 130.)

Last updated March 8, 2010