Tax Benefits of the Medical Expense Deduction

What medical expenses are deductible on tax returns?

Taxpayers incurring significant medical expenses may be able to save money with the medical expense deduction on their tax returns. It is important to realize that there are limits to the medical expense deduction that taxpayers should be aware of.

 

10% of your adjusted gross income (AGI) Rule

For 2014, the medical expense deduction can only be claimed to the extent your unreimbursed costs exceed 10% of your adjusted gross income (AGI). This is an increase and is up from 7.5% of AGI which was allowed in 2012. However, the more favorable 7.5%-of-AGI threshold continues to apply through 2016 if you or your spouse has reached age 65 before the end of the tax year. Qualifying costs include many items other than hospital and doctor bills, and often amount to much larger figures than expected. Therefore, taxpayers are strongly encouraged to review expenses they incurred over the year to see what will qualify for the deduction.

Tax Benefits of the Medical Expense Deduction

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.

 

Common items that may qualify for the medical expense deduction:

  • Health insurance premiums. The cost of health insurance is a medical expense that may be deducted on a tax return. Taxpayers may deduct the portion of the premiums that they pay on employer provided heath insurance. Long-term care insurance premiums are also included in medical expenses, subject to specific dollar limits based on age. If you incur these it is best to consult IRS publications on the medical expense deduction.
  • Therapists, nurses, etc. The services of individuals other than doctors can qualify as long as the services relate to a medical condition and aren’t for general health or well-being of a taxpayer. These amounts are usually deductible if they are trying to address a specific ailment. Amounts paid for certain long-term care services required by a chronically ill individual also qualify as deductible medical expenses for tax purposes. These services will only qualify for the deduction if they are ordered by a doctor.
  • Transportation. The cost of getting to and from medical treatment is a medical expense that is normally overlooked around tax time.  This includes all taxi fares, public transportation, or the cost of using your own car. Car costs can be calculated at 24¢ a mile for miles driven in 2013 (23.5¢ a mile for miles driven in 2014), plus tolls and parking. Instead of using these mileage amounts, taxpayers can use their actual costs such as for gas and tolls.
  • Eyeglasses, hearing aids, dental work, psychotherapy, prescription drugs. Deductible medical expenses include the cost of glasses, hearing aids, dental work, psychiatric counseling, and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify even if they are arguable medical (such as certain plastic surgeries). Prescription drugs qualify, but  many over the counter items such as aspirin and vitamins will not qualify as a medical deductible expense.  Neither do amounts paid for operations or treatments that are illegal under federal law (such as marijuana), even if state or local law permits the procedure or drug.
  • Smoking-cessation programs. Amounts paid for participation in a stop smoking program and for prescribed drugs designed to alleviate nicotine withdrawal are deductible expenses for medical care. However, non-prescription nicotine gum and certain nicotine patches are not deductible medical expenses.
  • Dependents and others. You can deduct the medical costs that you pay for your dependents. Additionally, you may be able to deduct medical costs you pay for an individual, such as an elderly parent or grandparent, who would qualify as your dependent except that he has too much gross income or files jointly. In most cases, the medical costs of a child of divorced parents can be claimed by the parent who pays them, regardless of who gets the dependency exemption.
  • Weight-loss programs. A weight-loss program is a deductible medical expense if undertaken as treatment for a disease diagnosed by a physician. The disease can be obesity itself or another disease, such as hypertension or heart disease, for which the doctor directs you to lose weight. It’s a good idea to get a written diagnosis before starting the program. Deductible expenses include fees paid to join the program and to attend periodic meetings. Most of the time weight-loss food items will not qualify for a medical expense deduction

 

Medical Expenses Not Deductible on Tax Return

Any medical expenses for which you are reimbursed, such as by your insurance or employer, cannot be deducted on your tax return as a medical expense. 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.

 

Other Nondeductible Medical Expenses Include:

  • Cosmetic surgery not related to any of these:
    • Congenital abnormality
    • Accident
    • Disease
  • Medicare tax on wages and tips paid as part of the self-employment tax or household employment taxes
  • Nursing care for a healthy baby
  • Usually, drugs not approved by the FDA
  • Funeral, burial, or cremation costs

In summation, medical costs are fairly broadly defined for tax deduction purposes. Taxpayers are also reminded that they must have receipts and be able to support any medical expense deduction that they take