The good news is that many medical expenses are tax-deductible. The bad news is that your medical expenses must total more than 7.5% of your adjusted gross income (AGI) in order for you to take the medical tax deduction. More importantly, you can only claim the medical expenses in excess of 7.5% of your AGI.
In general, the people most likely to benefit from the medical expense tax deduction are both those who purchase their own health insurance and the self-employed since self-employed individuals may be able to deduct medical insurance payments for themselves, their spouse and dependents. Health premiums paid for by an employer-sponsored health plan typically cannot be deducted.
How to Calculate the Medical Expense Tax Deduction
If you have an AGI of $45,000, your medical expenses will need to be more than $3,375 in order for you to take the medical expense tax deduction. If your medical expenses total $5,000, you can deduct $1,625 – the amount in excess of the 7.5% income threshold, rather than the full amount of expenses.
Additionally, if your medical expenses exceed 7.5% of your income, you must itemize on your tax return (Form 1040, Schedule A) in order to take a medical expense tax deduction. If the total value of all of your deductions – mortgage interest, property taxes, charitable contributions, medical expenses, etc. – does not exceed the standard deduction, then you will not benefit from the medical expense deduction.
Which Medical Expenses are Tax-Deductible?
Most expenses incurred by medical care that is intended to prevent and treat physical and mental ailments qualify for the medical tax deduction. Eligible expenses typically include the cost of diagnosing, treating and preventing diseases and other health problems, and there are a wide array of products and services that qualify.
According to the IRS, the following medical expenses are tax-deductible:
Illness Treatment & Prevention
Medical expenses related to the treatment of an illness – either physical or mental – or prevention of an illness are tax-deductible. You can claim medical expenses incurred on behalf of yourself, your spouse and your dependents. Preventative care, diagnosis, cures and mitigation expenses all qualify as medical expenses.
Payments made to most doctors, psychologists, psychiatrists, dentists, gynocologists, and physical therapists, as well as the cost of annual eye exams, hospital visits, chiropractic care, acupuncture treatments and nursing homes, are tax-deductible. However, you can only claim the amount that you actually pay, and not the total amount of the bill. If the bill for your doctor visit is $100 but you only pay the $25 co-pay , you can only include the $25 that you actually paid – not the amount that your insurance pays on your behalf.
Qualified Medical Products
The costs of certain medical items are tax-deductible, including:
- Prescription eyeglasses or contact lenses
- Laser eye surgery
- Hearing aids
- Wheelchairs and crutches
- False teeth
- Guide dogs for the deaf or blind.
Alcohol & Drug Treatment
If you are admitted to a center for alcohol or drug addiction, the cost of your inpatient or acupuncture treatment is considered a tax-deductible medical expense. You can also deduct any money that you spend on doctor-prescribed medications that are intended to help you stop smoking or to alleviate symptoms caused drug and nicotine withdrawal.
If your doctor recommends a weight-loss program after a diagnosis for a certain disease or for obesity, you can deduct the cost of the program; however, you generally cannot deduct diet food or health club dues.
You can also deduct the cost of transportation to and from medical care facilities through one of the following methods:
- Public transportation
- Gas and oil for your vehicle
- Standard mileage deduction for all of your medical travel, which includes tolls and parking expenses.
Health Insurance Premiums
You can include health insurance premiums that you pay for yourself, but not those premiums withheld from your paycheck, since health insurance premiums paid through paycheck withholding are already done on a pre-tax basis.
If you attend a medical conference related to a chronic disease or disorder that you, your spouse or one of your dependents is suffering from, and attendance is essential to that individual’s treatment, you may deduct admission and transportation expenses. However, neither not meals nor lodging costs associated with the conference are tax-deductible.
Which Medical Expenses are NOT Tax-Deductible?
The following medical- and dental-related expenses are not eligible for the medical tax deduction:
- Cosmetic procedures
- A trip or program for the general improvement of your health
- Nicotine gum and Nicotine patches purchased without a prescription
- Funeral or burial expenses
- Over-the-counter medicines
- Meals and lodging expenses incurred at medical conferences
- Toiletries, including toothpaste and cosmetic products.
Additionally, any reimbursement reduces your deductible expense. This includes both reimbursements paid directly to you as well as those paid directly to a medical care facility.
2011 Tax Law Changes
Healthcare law changes for 2011 mean that Health Reimbursement Accounts, Health Savings Accounts and Flexible Spending Accounts may no longer be used to purchase non-prescription medications. Additionally, a new tax has been imposed on brand name pharmaceutical manufacturers – an expense that will be passed on to the consumer.
Additional information about medical tax deductions can be found on the IRS Website. To learn more about who will qualify as a dependent for the purpose of a medical tax deduction, view Publication 502, Medical and Dental Expenses.
This guest post was provided by Manny Davis. His website contains a frequently updated tax advice blog with tax news, tax changes and tax saving tips, as well as detailed guides of tax solutions to help taxpayers through various tax-related problems.