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Tax: Medical Expense Deductions

Frequently Asked Questions

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WHAT IF I GET REIMBURSED FOR A MEDICAL EXPENSE? CAN I STILL DEDUCT IT?

No. You are only allowed to deduct expenses that are not covered by your insurance company.

You cannot include:

  • Expenses paid for or reimbursed by an insurance plan.
  • Expenses paid for or reimbursed by an employer.
  • Expenses paid for by anyone else.

This is the case whether payments were made directly to the supplier of the medical care or to you.

Example: Your doctor visit is $150. Of the $150, you pay a $25 co-pay. The insurance company pays the doctor the remaining $125. Only the $25 co-pay is potentially deductible.

Be sure to file all potential insurance claims. Your deduction could be denied if you fail to make a claim when you were eligible for reimbursement.

WHAT IF I RECEIVE MONEY FROM A COURT AWARD OR FROM A SOURCE OTHER THAN A HEALTH INSURANCE POLICY?

  • If you expect compensation for your illness from a court reward, you should make sure your attorney considers how to structure the award. If part of the award is designated for future medical expenses, you cannot claim a deduction for expenses for that illness until they exceed the portion of the award designated for medical expenses.
  • If you receive compensation from other sources such as an accident insurance plan, the general rule is they reduce deductibility to the extent the money is compensation for medical expenses, but do not reduce your medical expenses if the payments are compensation for the disability itself.

WHAT IF I RECEIVE COMPENSATION FOR A MEDICAL EXPENSE DEDUCTED IN A PREVIOUS YEAR?

  • Compensation for medical expenses previously deducted must be included in gross income. If you receive a lump-sum payment, it is considered first allocated to any expenses previously deducted.
  • At least one court has concluded that lump sum awards cannot be allocated to future medical expensesThe IRS has taken the opposite view.

DOES IT MATTER WHEN I RECEIVED THE CARE OR PURCHASED THE DRUG, OR ONLY WHEN I PAID FOR IT?

You can only include medical and dental expenses that you paid for during the tax year. It does not matter when the services were provided. The only thing that matters is when they were paid for.

  • If you pay by check, the day you mail or deliver the check generally is the date of payment.
  • If you use a "pay-by-phone" or "online" account to pay, the date reported on the statement of the financial institution showing when payment was made is the date of payment.
  • If you use a credit card or borrowed money, the date you made the charge is the date of payment. It does not matter when you actually pay the credit card bill or your debt.

WHAT IF I DID NOT CLAIM A MEDICAL EXPENSE IN A YEAR I COULD HAVE?

You can file Form 1040X, Amended U.S. Individual Tax Return for that year. An amended return must be filed within three years from the date the return was filed or within two years from the date the tax was paid.

WHAT IF MY SPOUSE AND I FILE SEPARATE TAX RETURNS?

The answer depends on whether or not you live in a community property state.

  • If you and your spouse live in a non-community property state: Each of you can only include the medical expenses that you each actually paid. Any expenses paid out of a joint checking account are considered to have been paid equally by each of you, unless you can show otherwise.
  • If you and your spouse live in a community property state: Any medical expenses paid out of community funds are divided equally. If the expenses are paid from separate funds, only the spouse who paid the medical expenses can include them.

WHERE DO I TAKE A MEDICAL DEDUCTION?

Medical expense deductions are reported on Form 1040, Schedule A, Itemized Deductions.

 Research by:

Dexter D.J. Samida, Esq.
Sullivan and Cromwell
New York, NY


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