Tax: Medical Expense Deductions
The federal tax code permits a tax deduction for medical and dental expenses you pay for yourself and certain other people once the amount of the expenses reaches a threshold. Think of the threshold like a yearly deductible in a health insurance policy. You have to pay the amount each year before the benefit starts. Once you reach the threshold, acceptable medical expenses decrease your income for tax purposes. The result is that you pay less tax.
Medical expenses which are paid by other people or which are reimbursed by insurance or an employer are not included as medical expenses for purposes of the medical expense deduction.
No medical or dental expense deductions are allowed unless:
- The expenses are considered to be medical expenses by the IRS AND
- The amount of the expenses in a given year are at least equal to the following percentages of your Adjusted Gross Income (your Adjusted Gross Income is found on IRS form 1040, line 38) :
- Singles under age 65: ten percent (10%) of your adjusted gross income
- Married people under age 65 who file a joint return, unless one of the filers is age 65 or older: ten percent (10%) of adjusted gross income
- If either the taxpayer or the taxpayer’s spouse has turned 65 before the close of the tax year: Seven and a half percent (7.5%) of your adjusted gross income, (IRS form 1040, line 38). As of 2017 the 10% rule will apply to all taxpayers. AND
- The total of all of your itemized deductions exceeds the amount you can claim as a standard deduction.
- For 2013, the standard deduction is $6,100 for individuals and $12,200 for married couples filing jointly.
- Potential itemized deductions include:
- State and local income taxes, or sales tax
- Real estate and personal property taxes
- Home mortgage and investment interest
- Charitable contributions
- Casualty and theft losses, and
- Job expenses
- For more information, visit www.irs.gov/taxtopics/tc501.html
Once you exceed the threshhold, you can deduct amounts above the threshhold (not the expenses below the threshold.) For instance, if your threshold is 7.5% and your Adjusted Gross Income is $20,000 then you must spend over $1,500 on medical care before you can take any deduction ($1,500 is 7.5% of $20,000). Any amount over the $1,500 threshold may be deducted. In this example, if you had total medical care expenses of $1,930 you would subtract the $1,500 threshold amount and arrive at a medical care deduction of $430.
Definition Of Medical Expenses
The IRS has a long list of expenses it considers to be Medical Expenses. It is worthwhile taking a few minutes to look our article What Expenses Are Medical Expenses For Income Tax Purposes And What Are Not? because there are likely to be expenses you may not think of as an expense for tax purposes. For example:
- Travel expense to and from a doctor is considered to be a Medical Expense.
- Health insurance premiums are deductible if paid for with after-tax dollars. This includes payments for COBRA, and Medicare Parts B and D.
- Medical care does not have to be provided in the United States.
- Drugs from outside the U.S. must be legally approved for import to be considered a medical expense for tax purposes.
A Few Facts About Medical Deductions
- The key to determining deductibility is whether the expense was related to a specific ailment, and not directed at improving general health or well-being. If the expense is related to general health or well-being, it will not be deductible.
- Determining whether care is deductible depends on the nature of the services. It does not generally depend on the medical title or qualifications of the person providing the service.
- An insurance company's determination of whether an expense is reimbursable does not determine whether the expense is tax-deductible. Even if an expense is not reimbursable by an insurer, the expense may still be deductible.
- Reimbursed expenses are not deductible. If an insurance company partially reimburses you for an expense, the amount you can deduct is limited to the expense you paid minus the amount you were reimbursed. For example, if the cost of medical care was $2,000 and your insurer reimbursed you $1,500, you can only deduct the difference ($500).
- Donations made to non-profit groups do not qualify as medical care expenses. They may qualify as charitable donations which are deductible if a threshold is met. For more about charitable contributions, click here.
- To be a deductible medical expense, the expense must be reasonable. What's reasonable depends on the situation.To be deductible, a medical expense must be paid with after-tax, out-of-pocket dollars.
- Medical expenses are normally deductible in the year paid or charged to a credit card.
How To Maximize A Medical Expense Deduction
If you have large enough medical bills one year to meet the threshold, maximize your deduction by paying every medical expense you can during that year for yourself and the people on the IRS list.
If you find that you are coming close to the end of the year, and the medical expenses you paid for do not add up to the minimum required, consider postponing payments until the following year when they may help.
If you include medical expenses in your itemized tax deductions, make sure to save your medical bills and payment statements as proof. If you have a smart phone, one way to keep track of receipts is to download an app: Expensify. (You take a picture of the receipt with your phone's camera). The app is free.
- Non-Resident Alien: A medical care deduction is not available for a non-resident alien individual working within the United States.
- The information in this article is about federal tax. As a general matter, the federal situation is followed on a state level. However, it is worth checking in your state. For example, the threshold in your state may be lower than the federal threshold. For information concerning the laws in your state or local area, contact your accountant, a tax service or your state revenue agency. Contact information for state revenue agencies can be found at: www.shgresources.com/agencies/revenue/.
For more information,, see:
- Whose Medical Expenses Can I Include?
- How Much Can I Deduct?
- What Is Deductible As A Medical Expense And What Is Not? 462
- A General Overview Of What Expenses Are Considered To Be Medical Expenses For Tax Purposes
- Frequently Asked Questions
What If I Get Reimbursed For An Expense? Can I still deduct it?
What If I Receive Money From A Court Award Or From A Source Other Than A Health Insurance Policy?
What If I Receive Compensation For A Medical Expense Deducted In A Previous Year?
Does It Matter When I Received The Care Or Purchased The Drug, Or Only When I Paid For It?
What If I Did Not Claim A Medical Expense In A Year I Could Have?
What If My Spouse And I File Separate Tax Returns?
Where Do I Take A Medical Deduction?
- For information about avoiding a tax audit, as a person with a serious health condition, click here.
- For information about surviving a tax audit as a person with a serious health condition, click here.
- For information about free tax counseling, click here.
The information in this article is not intended to be tax or legal advice. Consult your accountant or lawyer for tax or legal advice.
Dexter D.J. Samida, Esq.
Sullivan and Cromwell
New York, NY