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Medical Expense Deduction: Everything You Need to Know

What is the Medical Expense Deduction?

The medical expense deduction is a tax break that allows you to deduct unreimbursed, qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI). This means, if you have an AGI of $50,000 and $5,000 in medical expenses, you can deduct $1,250 ($5,000 – $3,750) on your taxes.It’s important to note, you can only claim this deduction if you itemize your deductions on Schedule A of your tax return. With the standard deduction nearly doubling in recent years, fewer taxpayers are itemizing. In fact, the number of people claiming the medical expense deduction fell by more than half between 2017 and 2021.So, before you start tallying up your medical receipts, make sure your total itemized deductions – including medical expenses, state and local taxes, mortgage interest, and charitable contributions – exceed your standard deduction. Otherwise, you won’t benefit from itemizing and claiming the medical expense deduction.

Filing Status 2023 Standard Deduction
Single $13,850
Married Filing Jointly $27,700
Married Filing Separately $13,850
Head of Household $20,800

Remember, only unreimbursed expenses count towards the deduction. If your insurance covered the cost, you can’t claim it on your taxes. And, you’ll need meticulous records and documentation to support your deduction in case of an audit.While the 7.5% threshold and itemizing requirement may seem daunting, don‘t write off the medical expense deduction just yet. If you, your spouse, or your dependents had significant healthcare costs not covered by insurance, this deduction could provide some much-needed tax relief. Just be sure to understand the rules and keep detailed records.

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What Medical Expenses are Tax Deductible?

When it comes to the medical expense deduction, not all healthcare costs are created equal. The IRS has strict rules about what does and doesn‘t qualify. Here‘s a rundown of some common deductible expenses:

  1. Health insurance premiums: You can deduct premiums for medical, dental, and long-term care insurance, as long as you pay them with after-tax dollars. If your premiums are paid pre-tax through an employer-sponsored plan, they’re already tax-advantaged and can’t be deducted.
  2. Copays, coinsurance, and deductibles: Out-of-pocket costs you pay for medical care, including doctor visits, hospital stays, and prescription drugs, are generally deductible.
  3. Dental and vision care: Preventive care, treatments, and supplies – like cleanings, fillings, braces, contact lenses, and eyeglasses – qualify for the deduction.
  4. Mental health services: Therapy sessions and other treatments for mental health conditions are deductible, as are inpatient stays at a psychiatric hospital.
  5. Alternative treatments: Expenses for acupuncture, chiropractic care, and other alternative treatments may be deductible if they’re recommended by a licensed healthcare provider to treat a specific medical condition.
  6. Medical equipment and supplies: The cost of items like wheelchairs, crutches, hearing aids, and prosthetics are deductible, as are expenses for their maintenance and repair.
  7. Prescriptions and over-the-counter drugs: Medications prescribed by a doctor are deductible, and so are many over-the-counter drugs used to treat a specific medical condition. Just be sure to get a written recommendation from your healthcare provider.
  8. Transportation and lodging for medical care: You can deduct the cost of traveling to and from medical appointments, including gas, parking, and tolls. If you have to travel out of town for treatment, you may also be able to deduct lodging expenses.
  9. Home improvements for medical reasons: If you make changes to your home to accommodate a medical condition – like installing a wheelchair ramp or widening doorways – the cost may be deductible.
  10. Long-term care: Expenses for nursing home care and in-home assistance with daily living activities are deductible, as are premiums for qualified long-term care insurance (up to certain limits based on age).

Keep in mind, this isn‘t an exhaustive list. IRS Publication 502 has a complete rundown of deductible medical expenses. And remember, for an expense to qualify, it must be primarily for the prevention or treatment of a physical or mental illness. Cosmetic procedures and general health expenses, like vitamins and gym memberships, typically don’t make the cut.

How to Claim the Medical Expense Deduction

If you think you might be eligible for the medical expense deduction, here‘s what you need to do to claim it on your tax return:

  1. Keep meticulous records: Throughout the year, hang onto receipts, bills, and other documentation for your medical expenses. You’ll need this proof if the IRS ever questions your deduction.
  2. Determine if you can itemize: Add up your total itemized deductions, including medical expenses, state and local taxes, mortgage interest, and charitable contributions. If the total exceeds your standard deduction, it makes sense to itemize.
  3. Calculate your deduction: If you’re itemizing, tally up your unreimbursed medical expenses and subtract 7.5% of your AGI. The result is the amount you can claim as a deduction on Schedule A of your tax return.

Here’s an example: Let’s say your AGI is $75,000 and you had $10,000 in unreimbursed medical expenses. First, calculate 7.5% of your AGI, which is $5,625. Subtract that from your total medical expenses to get your deduction amount of $4,375.

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Adjusted Gross Income (AGI) $75,000
Unreimbursed Medical Expenses $10,000
7.5% of AGI $5,625
Medical Expense Deduction $4,375

It’s important to note, you can only deduct expenses you paid during the tax year, regardless of when you received the medical services. So, if you had a procedure in December but didn’t pay the bill until January of the following year, you would claim the expense on the tax return for the year you paid.One last tip: If you’re self-employed and have a net profit for the year, you may be able to deduct your health insurance premiums on Schedule 1 of your tax return, without itemizing. This is known as the self-employed health insurance deduction, and it‘s not subject to the 7.5% AGI threshold.Claiming the medical expense deduction can be tricky, but it’s worth the effort if you had significant unreimbursed healthcare costs. Just be sure to keep good records and follow the IRS rules to the letter. And, if you’re unsure about anything, consult a tax professional for guidance.

Frequently Asked Questions about the Medical Expense Deduction

  1. Can I deduct medical expenses for my spouse and dependents?
    Yes, you can deduct unreimbursed medical expenses you paid for yourself, your spouse, and your dependents, as long as you claim an exemption for them on your tax return.
  2. What if I have a Health Savings Account (HSA) or Flexible Spending Account (FSA)?
    If you used funds from an HSA or FSA to pay for medical expenses, you can’t deduct those expenses because the money in those accounts is already tax-advantaged. However, you can deduct any qualified expenses that exceed your HSA or FSA balance and were paid out-of-pocket.
  3. Are over-the-counter medications deductible?
    Yes, but only if they’re recommended by a doctor to treat a specific medical condition. You’ll need a written recommendation from your healthcare provider to claim the deduction.
  4. Can I deduct the cost of cosmetic surgery?
    Generally, no. The IRS only allows you to deduct expenses for procedures that are medically necessary, not those that are purely cosmetic. However, there are exceptions for procedures that correct a deformity or promote proper body function, such as reconstructive surgery after an accident or mastectomy.
  5. What if I receive reimbursement for a medical expense I already deducted?
    If you deduct a medical expense on your tax return and later receive reimbursement for that expense (from insurance or another source), you may need to include the reimbursement as income on your tax return for the year you receive it. This is to prevent you from getting a double tax benefit for the same expense.
  6. Can I deduct the cost of a gym membership or fitness program?
    No, the IRS doesn’t allow you to deduct expenses for general health and fitness, like gym memberships, health club dues, or weight loss programs. However, if a doctor recommends a specific fitness regimen to treat a diagnosed medical condition, you may be able to deduct those expenses with proper documentation.
  7. Are alternative treatments like acupuncture and chiropractic care deductible?
    Yes, as long as the treatments are recommended by a licensed healthcare provider to diagnose, cure, mitigate, treat, or prevent a specific illness or condition. You can’t deduct these expenses if they’re for general health and well-being.
  8. Can I deduct the cost of medical marijuana?
    It depends on your state’s laws and your specific circumstances. The IRS doesn’t allow a deduction for controlled substances like marijuana, even if it’s legal under state law. However, if you have a prescription for a medication derived from marijuana, like CBD oil, you may be able to deduct the cost with proper documentation.
  9. What records do I need to keep to claim the medical expense deduction?
    You should keep receipts, bills, statements, and any other documentation that shows the date, amount, and purpose of your medical expenses. If you’re claiming mileage for travel to and from medical appointments, keep a log of the dates, destinations, and miles driven. It’s a good idea to keep these records for at least three years after you file your tax return, in case of an audit.
  10. Can I deduct medical expenses for a prior year on my current tax return?
    No, you can only deduct medical expenses you paid during the tax year for which you’re filing a return. However, if you paid for medical services one year but didn’t get the bill and pay it until the following year, you would deduct the expense on the return for the year you paid, not the year you received the services.

Real-World Examples of the Medical Expense Deduction in Action

To help illustrate how the medical expense deduction works, let’s look at a few hypothetical scenarios:

Example 1: Meet John and Sarah

John and Sarah are a married couple filing a joint tax return. Their combined AGI for the year is $100,000. They had the following unreimbursed medical expenses:

  • Health insurance premiums: $6,000
  • Dental cleanings and fillings: $1,200
  • Prescription medications: $2,500
  • Doctor copays: $800
  • New eyeglasses for Sarah: $400

Their total medical expenses are $10,900. To calculate their deduction, they first find 7.5% of their AGI, which is $7,500. They subtract that from their total expenses to get a deduction of $3,400.

Adjusted Gross Income (AGI) $100,000
Total Unreimbursed Medical Expenses $10,900
7.5% of AGI $7,500
Medical Expense Deduction $3,400

John and Sarah’s standard deduction is $27,700. When they add their medical expense deduction to their other itemized deductions (mortgage interest and charitable contributions), the total comes to $28,400. Since this is higher than their standard deduction, they choose to itemize and claim the medical expense deduction on Schedule A of their tax return.

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Example 2: Meet Emily

Emily is a single taxpayer with an AGI of $50,000. She had the following unreimbursed medical expenses during the year:

  • Doctor visits and lab tests: $1,200
  • Prescription drugs: $1,800
  • Dental surgery: $3,000
  • Mileage for travel to medical appointments (500 miles @ 18 cents/mile): $90

Emily’s total medical expenses are $6,090. She calculates 7.5% of her AGI, which is $3,750, and subtracts that from her total expenses. This gives her a medical expense deduction of $2,340.

Adjusted Gross Income (AGI) $50,000
Total Unreimbursed Medical Expenses $6,090
7.5% of AGI $3,750
Medical Expense Deduction $2,340

However, Emily’s standard deduction is $13,850. Even when she adds her medical expense deduction to her other itemized deductions (state income taxes and charitable contributions), the total is only $12,640. Since this is less than her standard deduction, Emily decides not to itemize and claims the standard deduction instead.

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Example 3: Meet Robert

Robert is a self-employed consultant with a net profit of $80,000 for the year. He’s single and had the following medical expenses:

  • Health insurance premiums: $8,000
  • Prescription medications: $1,500
  • Dental cleanings and X-rays: $600
  • New contact lenses: $250

Robert’s total medical expenses are $10,350. As a self-employed individual, he’s able to deduct his health insurance premiums on Schedule 1 of his tax return, without itemizing. This deduction is not subject to the 7.5% AGI threshold.For his remaining medical expenses ($2,350), Robert calculates 7.5% of his AGI, which is $6,000. Since his expenses don’t exceed this threshold, he‘s not able to claim a deduction for them.

Adjusted Gross Income (AGI) $80,000
Self-Employed Health Insurance Deduction $8,000
Remaining Unreimbursed Medical Expenses $2,350
7.5% of AGI $6,000
Medical Expense Deduction $0

However, Robert still benefits from the self-employed health insurance deduction, which reduces his taxable income by $8,000. This deduction, combined with his other business expenses, helps lower his tax bill for the year.As these examples show, the medical expense deduction can be a valuable tax break for those with significant unreimbursed healthcare costs. But, it‘s not always the most beneficial option, especially for taxpayers with lower expenses or a higher standard deduction. The key is to keep good records, understand the rules, and run the numbers to determine if itemizing and claiming the deduction makes sense for your situation.

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