Medical expenses can take a bite out of your budget, especially if you have unforeseen emergencies that are not fully covered by your insurance. The Internal Revenue Service allows taxpayers some relief, making some of these expenses partly tax-deductible. To take advantage of this tax deduction, you need to know what counts as a medical expense and how to claim the deduction.
Deduction value for medical expenses
The IRS allows you to deduct qualified medical expenses that exceed 10% of your adjusted gross income for the year. Your adjusted gross income (AGI) is your taxable income minus any adjustments to income such as deductions, contributions to a traditional IRA and student loan interest.
For example, if you have a modified adjusted gross income of $45,000 and $5,475 of medical expenses, you would multiply $45,000 by 0.10 (10 percent) to find that only expenses exceeding $4,500 can be deducted. This leaves you with a medical expense deduction of $975 (5,475 - 4,500).
There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouse are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.
Which medical expenses are deductible?
The IRS allows you to deduct preventative care, treatment, surgeries and dental and vision care as qualifying medical expenses. You can also deduct visits to psychologists and psychiatrists. Prescription medications and appliances such as glasses, contacts, false teeth and hearing aids are also deductible.
The IRS also lets you deduct the expenses that you pay to travel for medical care such as mileage on your car, bus fare and parking fees.
What's not deductible?
Any medical expenses for which you are reimbursed, such as by your insurance or employer, cannot be deducted. In addition, the IRS generally disallows expenses for cosmetic procedures. You cannot deduct the cost of non-prescription drugs (except insulin) or other purchases for general health such as toothpaste, health club dues, vitamins or diet food, non-prescription nicotine products or medical expenses paid in a different year.
Claiming the medical expenses deduction
To claim the medical expenses deduction, you must itemize your deductions. Itemizing requires that you not take the standard deduction, so you should only claim the medical expenses deduction if your itemized deductions are greater than your standard deduction (TurboTax will do this calculation for you).
If you elect to itemize, you must use IRS Form 1040 to file your taxes and attach Schedule A.
On Schedule A, report the total medical expenses you paid during the year on line 1 and your adjusted gross income (from line 38 of your Form 1040) on line 2.
• Enter 10% of your adjusted gross income on line 3.
• Enter the difference between your expenses and 10% of your adjusted gross income on line 4.
• The resulting amount on line 4 will be subtracted from your adjusted gross income to reduce your taxable income for the year.
• If this amount, plus any other standard deductions you claim, is less than your standard deduction, you should not itemize.
Remember, TurboTax will ask you simple questions about your expenses, tell you which deductions you qualify for, and fill in all the right forms for you. Brought to you by TurboTax.com
RELATED: Guide to commonly-filed tax forms
Guide to commonly-used US tax forms
Guide to commonly-used US tax forms
The 1040 family of tax forms is for federal income tax and is absolutely essential for all.
The 1040EZ form is the simplest version and is typically filed by those who:
Have no dependents
Are younger than 65
Earned less than $100,000
Don’t plan to itemize deductions
Form 1040A is more comprehensive than 1040EZ, but simpler than the regular 1040. It's beneficial for those who earn less than $100,000 and don’t have self-employment income -- but who want to make adjustments to their taxable income, such as child tax credits or deductions for student-loan interest. Note that it doesn't allow for itemized deductions.
Form 1040 is filled out by those who make $100,000 or more, have self-employment income or plan to itemize deductions.
The W-2 is completed by employers document each employee's earnings for the calendar year. You will want to take a look at this tax form for important information you'll need to fill out your 1040, 1040A or 1040EZ.
The 1098 form is filled out by those who:
paid interest on a mortgage
paid interest on a student loan
paid college tuition
donated a motor vehicle to charity
The 1099 series is reports all income that isn’t salary, wages or tips, and must be reported on both the state and federal level.
1099-DIV reports dividends, distributions, capital gains and federal income tax withheld from investment accounts, including mutual fund accounts.
1099-INT trakcs interest income earned on investments.
1099-OID (Original Issue Discount) is provided if you received more than the stated redemption price on maturing bonds.
1099-MISC documents self-employment earnings, as well as miscellaneous income such as royalties, commissions or rents. It covers all non-employee income that is not derived from investments.
If you receive a refund that you're unable to pay in full, you can request a monthly installment plan using Form 9465.
Don't forget to notify the IRS if you move! Use Form 8822 to change your address with the Internal Revenue Service. Otherwise, notices, refunds paid with a paper check and other correspondence relating to your personal, gift and estate taxes will be sent to your former address.
Anyone who has been employed by a company has completed a Form W-9. The W-9 is used by employers for payroll purposes -- and the information on the W-9 is used to prepare employee paychecks during the year and W-2 forms at the end of the year.
The W-4 is an IRS form completed for employers know how much money to withhold from your paycheck for federal taxes. Accurately completing your W-4 can both ensure you don't have a big balance due at tax time and also prevent you from overpaying your taxes.