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A tax deduction, like the well-known medical expense deduction, won’t exactly pay your taxes directly. Instead, tax deductions reduce the amount of money that you have to pay taxes on. Choosing to take the medical expense deduction gives you a write-off that will ultimately reduce, but not erase, the taxes that you owe.
High medical costs, as you can imagine, aren’t like winning the lottery. You’ll probably need to have significant income or medical expenses for a medical deduction to make sense.
What Is a Medical Expense Deduction?
There are so many deductible medical expenses that you’re almost certain to pick up a few medical expense deductions during the year. However, you’ll have to file your taxes in a certain way – itemizing your deductions instead of choosing the standard deduction – to deduct your medical costs.
Good for Those with Large Medical Bills
If you decide to itemize your tax deductions, you’ll also need to have relatively high medical costs. Your medical expense deduction will only begin to count after it surpasses 10 percent or more of your adjusted gross income (or “AGI” – this is your total pre-tax income before certain non-itemized deductions such as health savings account spending). Think of this 10 percent as your medical expense deduction threshold. If your total medical expenses are greater than your medical expense deduction threshold, then you have qualified medical expense deductions.
The amount of time it takes to determine the deduction will vary for each person. You could generate all the bills you need to maximize this deduction “if you go for a big surgery one time,” says Alison Flores, principal tax research analyst at The Tax Institute at H&R Block. “Any time you’re chronically ill,” says Flores, “it would add to the amount of time [to get your paperwork in order].”
Example: Let’s say you spent $8,000 on medical expenses. If your adjusted gross income (AGI) is $70,000, then your deduction threshold would be equal to $7,000. In this case, you could deduct $1,000 in medical expenses. Here’s a walkthrough of how this works:
- 10 percent of your adjusted gross income is equal to $7,000 – think of this as your deduction threshold;
- Any expenses less than 10 percent of your AGI do not count as deductible medical expenses;
- If you spent less than $7,000 on medical expenses, you cannot deduct any of those expenses; but,
- If you spent $8,000, you can deduct $1,000 (medical expenses past your $7,000 deduction threshold).
If you spent $9,000 on deductible medical expenses, $2,000 could be deducted, since that’s the difference left over after subtracting $7,000.
Medical Expense Threshold: A tax bill temporarily lowered the medical expense threshold from 10 percent to 7.5 percent of your annual income, only for 2017 and 2018. It was raised back to 10 percent in 2019.
Deductions Are Time-Limited
While some itemized deductions, like charitable giving, can be carried over to later tax years, carryovers “don’t exist for the medical deduction. You need to take [the deductions] in the year you that pay them or lose them completely,” according to Flores.
This means that if you incurred $200,000 of medical expenses on an AGI of $60,000, your medical bills wouldn’t make your tax bill two years from now disappear. Even if your medical deductions exceed your tax liability in a given year, the rest of your deductible medical expenses cannot be used in subsequent years.
If you have ongoing medical needs, like a caregiver, you can plan to deduct those costs each year.
Itemizing vs. Standard Deductions
If you elect to itemize your deductions instead of using the standard deduction, then medical expense deductions may offer significant tax relief. According to the Tax Foundation, 30 percent of households itemize their deductions, while the rest accept a standard deduction. You’re more likely than not to itemize your deductions if your annual income is above $75,000.
It usually won’t serve you well to deduct medical expenses, unless you expect your itemized deductions to exceed the standard deduction. For the 2019 tax year, the amount that most single individuals with no dependents will receive from the standard deduction is $12,200. Most couples who marry filing jointly will receive a $24,400 standard deduction, and having dependents will entitle you to additional standard deductions.
When a Medical Expense Deduction Is Right for You:
For example, let’s say you have a family of four (yourself, your spouse, and two dependents) filing jointly with an AGI of $150,000 last year. The combined cost of your dental work, surgery, and medical equipment all took a toll, and together you spent over $40,000 on deductible medical expenses. In this case, your medical deduction of $25,000 (which is $40,000 minus 10% of your AGI, or $15,000) would exceed your standard deduction of no more than $24,400.
What Medical Expenses Can I Deduct?
The IRS probably has much looser rules than your insurance company regarding what it counts as a medical expense. You can claim virtually any medical care that was prescribed by a doctor as a medical expense deduction.
If you spent your own money on something health-related, it’s generally acceptable to count it as a medical expense. In many circumstances, something that results from a health condition – such as a closed captioning adapter for a television set – is also an allowable medical expense.
You’ll still need to follow standard tax guidelines when claiming a medical expense deduction:
- You cannot have been reimbursed for the expenses that you deduct;
- The expenses must have been billed during the tax year in question;
- The expenses can only be deducted once; and
- You’ll want to save as much documentation as possible – don’t hesitate to collect your medical bills early and often.
Generally Allowable Medical Expense Deductions:
- Payments to doctors, dentists, alternative medical professionals, and mental health providers.
- Acupuncture, addiction treatment, and smoking cessation are deductible.
- Hearing aids are deductible.
- Massage therapy – if it’s prescribed for a condition like circulation or stress, or it’s billed as a medical therapy – will be deductible.
- Hospital costs (room and board in addition to medical expenses) are deductible.
- Prescription drugs are deductible.
- Medical equipment, from dentures to glasses to seeing eye dog leashes, is deductible.
- Nursing home costs, if you’re there primarily for medical reasons, are deductible.
- If you’re in a nursing home for non-medical reasons, only your medical expenses will be deductible.
- Transportation to medical care, including taxi, tolls, gas, and parking, are deductible.
- You can’t deduct a car, although you may be able to deduct the cost of outfitting your car to be handicap-accessible.
- Admission and transportation a medical conference that helps you care for yourself, your spouse, or your dependents are deductible.
- Meals and lodging at a conference are not deductible.
These Are Not Acceptable Medical Deductions:
- Payments made from a Health Savings Account or Flexible Spending Account aren’t deductible.
- Since these funds are already tax-exempt, you can’t deduct them again. “It’s easy to picture all your medical payments in one stack,” according to Flores, “but you need to think about sorting [HSA and FSA payments] out.”
- Payments that your insurance company made aren’t deductible.
- You can deduct your out-of-pocket payments for a medical bill, even if your insurance plan paid most of the bill. The payments your insurer made are what can’t be deducted.
- Over-the-counter drugs and toiletries aren’t deductible.
- Nicotine gum and patches are generally not tax-deductible as a medical expense.
- Child care is not tax-deductible as a medical expense.
- This includes babysitting, maternity clothes, and exercise programs for small children.
- Gym and health club costs may well be worth it, but they’re not tax-deductible.
- Weight loss programs are only deductible if they’re prescribed by a doctor.
- Cosmetic surgery won’t count as a medical deduction.
- Funeral and burial costs aren’t covered.
- They are, like, the opposite of medical care.
- Illegal medical procedures cannot be written off.
If You Get Coverage Through Your Employer: Your premiums will probably not count as a deductible medical expense. Most employer-based coverage premiums are taken from your income before you’re paid, as a pre-tax expense. Only premiums that are included as income in Box 1 of the W-2 wage statement that you’ll receive from your employer each year are deductible. You’ll want to check with your insurer or employer benefits department if you have any questions about how your premiums were paid for.
If You’re Self-Employed and Have Insurance: Even if you don’t itemize your deductions, you can deduct your entire health insurance premium! This deduction will be entered on your Form 1040, and not shunted with your other medical deductions on a Form 1040-A.
- You can take this deduction for qualified medical, dental, or long-term insurance;
- You’ll need to be truly self-employed, with no employees and no opportunity to join employer health insurance through your spouse; and
- The IRS lists a few additional qualifications that you’ll need to follow, but in general, “it can be one of the largest deductions you have”.
How to File Your Medical Expense Deduction:
To deduct medical expenses from your taxes, you’ll need to choose itemized deductions instead of a standardized deduction.
You’ll file a 1040 Schedule A Form that lists your itemized deductions, and you’ll follow specific instructions to list your medical deductions. This form will be attached to your Form 1040, which is one of the primary tax forms you’ll file with the federal government.
If you’re dealing with significant medical needs, collecting the paperwork is difficult enough. You know what to look for, but keep an eye out for home tax preparation software or a tax preparer to make your job much easier. Although the IRS still accepts paper tax forms, some states only accept electronic filings. Your taxes will also be processed much faster.
Tax preparation costs just so happen to be another deductible expense. You’ll be able to deduct the cost of preparing for taxes on next year’s return.
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