All of us have incurred a medical bill or expense at some point in life. Some people are lucky enough to only have the occasional doctor’s visit or check-up, while others may have illnesses or injuries that require multiple visits, extended treatment, and even surgery and hospitalization. These events are often unavoidable and can put a damper on a family’s budget.
There are few times when one can say the IRS is a hero or even a friend; but when certain medical expenses aren’t covered by a health insurance plan or have a high health insurance deductible, the IRS allows a deduction on the individual income tax return, which can help to relieve some of the burden caused by these medical expenses.
What medical expenses are deductible?
Medical expenses that qualify to be deducted on one’s tax return can vary greatly. Qualifying medical expenses are out-of-pocket payments to diagnose, cure, treat, or prevent conditions that affect any part or function of the body. This includes the payments for medical services rendered by physicians, surgeons, dentists, and other medical professionals, as well as those who specialize in mental health, such as psychologists, licensed therapists, and psychiatrists. Prescription medications are also considered qualified medical expenses. Payments made for health insurance premiums, qualified long-term care contracts, and long-term care services also qualify as medical expenses, as well as the cost of transportation to receive medical care.
The medical expenses you include on your tax return must have been paid by you during the taxable year and must not have been paid or reimbursed by an insurance company or other source. The expenses must also, have been paid to cover the medical costs for you, your spouse, or your qualifying dependent. Payments can be made via cash, check, or credit/debit card, but the payments must have been made during the tax year for which you are trying to qualify.
Are there any medical expenses that aren’t deductible?
While some expenses may be medically related, they may not be deductible. A very common nondeductible medical expense is nonprescription medication. This is usually referred to as over-the-counter medication, such as Tylenol, Aleve, or Benadryl, to name a few. Even if a doctor advises you to take an over-the-counter medication, it’s still not deductible. Vitamins and supplements also fall into the category of nondeductible medical expenses, unless they are recommended by a physician for a specific medical condition that was diagnosed by a doctor. More examples of nondeductible medical expenses are:
- Cosmetic surgery
- Procedures that are not medically necessary
- Medicinal marijuana
- Heath club dues, unless the membership was purchased for the sole purpose of affecting a structure or function of the body (such as a prescribed plan for physical therapy to treat an injury) or the sole purpose of treating a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease).
- Insurance premiums paid for policies that do not cover deductible medical care, such as life insurance
- Reimbursed expenses
How can you deduct medical expenses?
Your qualifying medical expenses are not deductible in full but are based on your Adjusted Gross Income (AGI). The deductible amount is the portion that exceeds 7.5% of your AGI. You can find your AGI on Line 11 of your 2023 Form 1040.
For example, let’s say your AGI is $150,000 and you have total medical expenses of $20,000. Let’s calculate your qualifying medical expense deduction.
Total medical and dental expenses: $20,000
AGI threshold: $150,000 x 7.5% = $11,250
Eligible deduction: $8,750
Medical expenses are claimed on
Schedule A, which is attached to Form 1040. This is the only place where personal expenses (called Itemized Deductions) are deductible on your tax return. Generally, most taxpayers do not file Schedule A if their total itemized deductions (medical and dental expenses, deductible taxes, interest expense, charitable contributions, and miscellaneous expenses) are not greater than their standard deduction. Therefore, if your total itemized deductions are not very high, choosing to itemize your deductions to claim your medical deduction expenses may not be as beneficial as claiming the standard deduction.
For example, if you file a joint tax return with your spouse for tax year 2023, your standard deduction is $27,700. Therefore, your itemized deductions, including medical expenses, must be greater than $27,700 to file Schedule A.
There is an exception to this rule for spouses using the Married Filing Separate status. If one spouse itemizes deductions, so must the other spouse, even if the other spouse does not have a lot or any itemized deductions.
Don’t fret if you’re not able to claim itemized deductions on your federal return. Most states have a lower standard deduction rate, making it easier to qualify to claim itemized deductions on your state tax return. Each state’s rules are different, so it’s important to check your state’s rules for the exact qualifying factors.
As we’ve learned, medical expenses are tax deductible. However, it is important to know which medical expenses are deductible and which ones are not. After determining if you have qualifying expenses, the rest depends upon your earnings and the amount spent on medical and dental expenses for yourself, your spouse, and qualifying dependents. Therefore, maintaining good records of your expenses is not only important for determining whether you’re eligible for the deduction, but also for claiming the correct amount for the deduction.
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