What Medical Expenses Are Tax Deductible: A Comprehensive Guide

Commonly Deducted Medical Expenses

Navigating the world of tax deductions can feel overwhelming, especially when it comes to medical costs. The Internal Revenue Service (IRS) allows taxpayers to deduct qualified medical expenses that exceed a certain percentage of their adjusted gross income (AGI). Understanding what qualifies is the first step toward potentially lowering your tax bill. These expenses must be primarily for the prevention or alleviation of a physical or mental defect or illness.

Payments to Medical Professionals

One of the most straightforward categories of deductible expenses includes payments made to a wide range of medical practitioners. This is not limited to just general physicians. You can deduct fees paid to doctors, surgeons, dentists, chiropractors, psychiatrists, psychologists, and osteopaths. The key is that the service is provided by a licensed professional for the purpose of diagnosing, treating, mitigating, or preventing a disease.

This category also includes non-traditional practitioners as long as their services are rendered for a specific medical condition and are not just for general health maintenance. For instance, payments to an acupuncturist for pain management would likely be deductible, but payments for a general wellness retreat would not.

Hospital and Inpatient Care

Costs associated with inpatient care at a hospital or a similar institution are generally deductible. This includes the cost of room and board, nursing services, and any treatments or medications administered during your stay. The primary reason for being in the facility must be to receive medical care. If you are in a nursing home, for example, the entire cost (including meals and lodging) is deductible if your main reason for being there is medical care.

If you are in a facility for personal reasons, only the portion of the cost that is directly for medical care can be deducted. This distinction is important for individuals in retirement communities or assisted living facilities where medical services are offered but are not the primary reason for residency.

Prescription Medications and Insulin

The cost of medicines prescribed by a doctor is a deductible medical expense. This includes the full amount you pay for any prescription drug, including any co-pays or amounts not covered by your insurance. Insulin is also fully deductible, even if you can obtain it without a prescription in your state. However, it's crucial to note that this deduction does not typically extend to over-the-counter (OTC) medicines. Unless an OTC medication is specifically recommended by your doctor to treat a diagnosed medical condition, it is generally not deductible.

Medical Aids and Equipment

Many items that assist with a medical condition or daily living are deductible. This includes the cost of purchasing, renting, and maintaining essential medical equipment. Common examples include eyeglasses and contact lenses, hearing aids (and the batteries to power them), crutches, wheelchairs, and prosthetic limbs. The cost of guide dogs or other service animals to assist individuals with visual, hearing, or other physical disabilities also falls into this category. This includes the costs of buying, training, and maintaining the animal, such as food and veterinary care.

Lesser-Known but Often Deductible Expenses

Beyond the obvious doctor visits and prescriptions, the IRS recognizes a variety of other expenses as medically necessary. Many taxpayers overlook these potential deductions, which can add up to significant savings.

Transportation and Lodging for Medical Care

The costs of getting to and from medical care are deductible. This can include the actual fare for a taxi, bus, train, or ambulance. If you use your own car, you can deduct a standard medical mileage rate set by the IRS each year (for example, 22 cents per mile for 2023), or you can deduct your actual out-of-pocket expenses for gas and oil. You can also include parking fees and tolls. The cost of lodging while away from home for medical care at a hospital or equivalent facility can also be deducted, up to $50 per night for each person (one for the patient, and one for a necessary caregiver).

Health and Long-Term Care Insurance Premiums

You can include in medical expenses any premiums you pay for health insurance policies. However, there's a critical rule: you can only deduct premiums paid with money that has already been taxed. This means if you pay for your health insurance through an employer-sponsored plan using pre-tax dollars (a common arrangement), you cannot deduct those premiums. But if you are self-employed, pay for COBRA coverage, or purchase a private plan with after-tax money, those premiums are deductible.

Similarly, premiums paid for a qualified long-term care insurance contract are deductible, but the amount you can deduct is limited based on your age. The IRS provides specific age-based limits that are updated periodically.

Addiction and Mental Health Treatment

Treating substance abuse and mental health conditions is considered medical care. Therefore, costs associated with these treatments are deductible. This includes payments for inpatient treatment at a therapeutic center for alcohol or drug addiction, as well as amounts paid for outpatient therapy or counseling sessions with a licensed psychiatrist, psychologist, or therapist. This also covers any prescription medications used to treat these conditions.

Home Modifications for Medical Needs

If you need to make changes to your home to accommodate a medical condition for yourself, your spouse, or a dependent, these costs can be deductible. Examples include installing entrance ramps, widening doorways, modifying bathrooms, or lowering kitchen cabinets. The deduction is limited to the extent that the expenses do not increase the value of your property. If the modification does increase your home's value, you can only deduct the cost that exceeds the increase in value.

What You Generally Cannot Deduct

Just as important as knowing what is deductible is knowing what isn't. The IRS has specific rules that exclude certain types of expenses from being claimed as a medical deduction.

• Cosmetic Surgery: Any surgery that is directed at improving appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease is not deductible. The only exception is if the surgery is necessary to correct a deformity arising from a congenital abnormality, an injury, or a disfiguring disease.
• General Health and Wellness: Costs for general health improvement are not deductible. This includes things like gym memberships, non-prescribed vitamins and supplements, diet food, and health club dues. These are considered personal expenses, even if they benefit your overall health.
• Non-Prescription Drugs: As mentioned earlier, over-the-counter medicines (except insulin) are not deductible unless specifically prescribed by a doctor for a specific medical condition.
• Reimbursed Expenses: You cannot deduct any medical expense that was paid for or reimbursed by your insurance company, your employer, or another party. You can only deduct your out-of-pocket costs.

Understanding the Thresholds for Medical Expense Deductions

Perhaps the most critical aspect of deducting medical expenses is understanding the "AGI floor." You cannot simply deduct all your medical costs. The IRS only allows you to deduct the total amount of qualified medical expenses that exceeds 7.5% of your Adjusted Gross Income (AGI). Your AGI is your gross income minus certain specific "above-the-line" deductions.

Let's consider a practical example. Suppose your AGI for the year is $80,000. The 7.5% threshold would be $6,000 (0.075 x $80,000). This means you must have more than $6,000 in qualified medical expenses before you can deduct anything. If your total medical expenses for the year were $9,000, you could deduct $3,000 ($9,000 - $6,000). If your expenses were only $5,500, you wouldn't be able to deduct anything because you haven't met the threshold.

Furthermore, to claim this deduction, you must itemize your deductions on Schedule A of Form 1040. If you take the standard deduction, you cannot also deduct your medical expenses. For many taxpayers, the standard deduction is higher than their total itemized deductions (including medical expenses), so it's important to calculate which option provides a greater tax benefit.

Frequently Asked Questions About Medical Deductions

Even with a clear understanding of the rules, specific situations can raise questions. Here are answers to some common queries people have about medical tax deductions.

Can I deduct medical expenses paid for someone else?

Yes, you can include medical expenses you paid for someone else, but only if that person was either your spouse or a dependent at the time the services were provided or at the time you paid the expenses. A dependent can be a "qualifying child" or a "qualifying relative." The rules for who qualifies are specific, considering factors like relationship, age, residency, and financial support.

Interestingly, there are situations where you can deduct expenses for someone who might not be your dependent for other tax purposes. For example, if you provide more than half of a parent's support but cannot claim them as a dependent because they have too much gross income, you may still be able to deduct the medical expenses you paid for them.

What documentation is required to claim the deduction?

While you don't submit your receipts with your tax return, you must keep meticulous records to substantiate your claims in the event of an audit. You should keep copies of all bills, invoices, and receipts from hospitals, clinics, labs, pharmacies, and doctors. Canceled checks or credit card statements can also serve as proof of payment.

It's also wise to keep a log of your medical-related travel, noting the date, mileage, and purpose of each trip. For any expense, you should be able to prove the amount you paid and that the expense was for medical care. Keeping a dedicated folder or digital file for these documents throughout the year can make tax time much easier.

How do HSAs, FSAs, and the medical deduction interact?

Health Savings Accounts (HSAs) and Flexible Spending Arrangements (FSAs) are tax-advantaged accounts that allow you to pay for medical expenses with pre-tax money. This is a critical distinction when considering the medical expense deduction. You cannot "double-dip" on tax benefits. Any medical expense that you pay for using funds from your HSA or FSA cannot also be included in your itemized medical expense deduction.

Since HSA and FSA funds are already tax-advantaged (either pre-tax or tax-deductible contributions), using them for medical costs provides an immediate benefit. The itemized medical expense deduction, with its high 7.5% AGI threshold, is typically only beneficial for taxpayers who have exceptionally high medical costs in a given year that exceed the funds available in their HSA or FSA.

Conclusion

Deducting medical expenses can provide significant tax relief for those with high healthcare costs, but it requires careful attention to detail. The key is to understand what qualifies as a deductible expense, what doesn't, and how the 7.5% AGI threshold impacts your ability to claim the deduction. By keeping accurate records and knowing the rules, you can ensure you are taking full advantage of the tax benefits available for your healthcare spending. It is always wise to consult the official IRS guidelines or a tax professional for advice tailored to your specific financial situation.

References

• IRS Publication 502, Medical and Dental Expenses
• TurboTax Medical Expenses Checklist