Are Medical Expenses Tax Deductible?
There’s nothing fun about medical bills or the reason you have them. The debt that often results can create financial strain — even for people with savings earmarked for extra expenses. Tax relief can offset these costs by lowering your tax burden so that you pay less income tax and keep more of your money.
Check Out: What To Do If You Owe Back Taxes to the IRS
Can You Deduct Medical Expenses From Your Taxes?
Yes, you can claim medical expenses on taxes. For tax year 2023, the IRS permits you to deduct the portion of your medical expenses that exceeds 7.5% of your adjusted gross income, or AGI.
“To take advantage of this, you must itemize your medical expense deductions on your IRS 1040,” said Danielle K. Roberts, Medicare insurance expert and co-founder of Boomer Benefits. “Make sure that the total of all itemized deductions is more than the standard deduction or it won’t benefit you.”
How To Calculate Your Tax Deduction for Medical Expenses
You can deduct the amount you spend on certain types of medical care and products when that amount is above 7.5% of your AGI. Your AGI is your income after adjustments for deductions like student loan interest, individual retirement account contributions and educator expenses.
To calculate the deduction, first calculate your adjusted gross income by completing Form 1040 or Form 1040-SR. Then enter the following information on the first four lines of Schedule A (Form 1040):
Add up all your medical expenses for the year, and enter the total on line 1.
Enter your adjusted gross income — it’s the amount shown on line 11 of your Form 1040 or 1040-SR — on line 2.
Multiply your AGI by 0.075, which is 7.5% (line 3). Your expenses must exceed this amount to be deductible.
Subtract your expenses from the product of your AGI times 0.075 to find your actual deduction, which you’ll enter on line 4.
Here’s a real-world example: Say you have an AGI of $50,000. Multiply $50,000 by 0.075 to get $3,750. You’d need over $3,750 in medical expenses to claim a deduction. With a hypothetical $6,500 in medical expenses, subtracting your $3,750 base amount from the $6,500 in expenses equals $2,750, which is your deduction if you choose to itemize rather than take the standard deduction.
What Medical Expenses Are Tax Deductible?
The IRS defines medical expenses as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists and other medical practitioners. They include the costs of equipment, supplies and diagnostic devices needed for these purposes.”
For example:
Fees to doctors, surgeons, dentists, chiropractors, psychiatrists, psychologists and other providers of professional services
Laboratory fees that are part of medical care
Medical insurance premiums beyond the portion your employer pays and that you pay with after-tax income
Long-term care and long-term care insurance premiums, up to certain limits
Inpatient alcohol and drug treatment programs
Ambulance service
Dental services like dentures, fillings and braces
Weight loss programs for a specific disease diagnosed by a physician
Modifications, like wheelchair ramps, to your home for medical care
Equipment and supplies, such as breast pumps, for nursing mothers
Insulin and prescription drugs
Medical equipment and supplies like glasses, contacts, hearing aids, crutches and similar medical devices
Guide dog or other service animal
Cosmetic surgery required due to a disease or accident
Removing lead-based paint from a damaged surface within the reach of a child who has or has had lead poisoning
Costs of attending a conference concerning a chronic condition of yours, your spouse’s or your dependent’s
Stop-smoking programs, but not nonprescription drugs like nicotine gum or patches
Out-of-pocket expenses, such as gas and oil, when you use a car for medical reasons
For a complete list of deductible medical expenses, check IRS Publication 502.
Expenses That Don’t Count as Tax Deductions
Of course, not every expense you see as medically related is one that the IRS would agree with. You can’t include medical expenses for which you were reimbursed or that were paid directly to the hospital or doctor, for example. Here’s a partial list of other expenses that won’t qualify, according to the IRS:
Most cosmetic surgery
Travel that a doctor recommended for rest or a change
Illegal treatments or substances
Diet food expenses
Nonprescription drugs except insulin
Nicotine patches or gum
Teeth whitening
Dancing lessons
Swimming lessons
What Are Other Tax-Advantaged Ways To Deal With Medical Expenses?
Unfortunately, not everyone will be able to itemize their medical expenses. But there are other tax-advantaged options that can help you save on these costs. Here are a few to consider.
Health Savings Account
An HSA is a type of savings account that allows you to set aside pretax funds to pay for qualifying medical costs. You can only contribute to an HSA if you have an eligible high-deductible health plan.
HSA contributions that are unused at the end of the year automatically roll over to the next year, which allows you to build up your balance for future medical expenses.
Flexible Spending Account
An FSA is an account that you — and possibly your employer — put pretax funds into to pay for qualifying medical and dental expenses for you, your spouse and any dependents.
In general, you must use the funds in your FSA within the year, but your employer has the option to provide you with a grace period of up to 2 1/2 additional months or allow you to carry over up to $640 in unused funds to the following year.
Health Reimbursement Arrangement
An HRA is a group health plan funded by an employer. Employees receive tax-free reimbursements for qualified medical expenses up to a preset dollar amount each year. One advantage of this type of account is that unused dollar amounts can be rolled over for use in future years.
Is It Worth Claiming Medical Expenses on Taxes?
Although writing off medical expenses as deductions could make for a healthier bottom line on your tax return, the standard deduction might make more sense for you. In either case, you can also look into other tax-advantaged ways to pay medical bills, such as health savings accounts, flexible spending accounts and health reimbursement arrangements — solutions that could shoulder at least part of the financial burden.
FAQ
Medical bills and taxes can put a big strain on your finances. Here are some of the questions people are asking as they try to get a handle on both.
Can I deduct medical insurance premiums?
Yes. You can deduct medical insurance premiums beyond the portion your employer pays and that you pay with after-tax income.
Are copays tax deductible?
Yes, copays are deductible as long as they pay for a deductible expense.
Which is better — taking the standard deduction or itemizing deductions so I can write off medical expenses?
You’ll have to calculate your deductions both ways to see which is the most beneficial. The 2023 tax write-off for people who take the standard deduction is $13,850 for single and individual filers, $27,700 for married joint filers and $20,800 for heads of household.
Where can I find IRS tax brackets?
IRS tax rates for 2023 are listed here. Rates for 2024 are listed here.
What is the FICA tax rate?
The FICA tax rate is 15.3% of your gross wages. The tax is divided between Social Security, which receives 6.2%, and Medicare, which receives 1.45%. If you're a W-2 employee, your employer pays half.
What is the capital gains tax rate?
Short-term capital gains are taxed at your federal income tax rate. Long-term capital gains tax rates vary from 0% to 20%, depending on your income.
How long does it take to get a tax refund?
Most taxpayers receive their refunds within 21 days, according to the IRS, but how long it takes to get your refund depends on whether you request a check or direct deposit (direct deposit is faster) and whether your return requires additional review.
Daria Uhlig, Cynthia Measom, Cody Bay and Michael Keenan contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: Are Medical Expenses Tax Deductible?
