There’s nothing fun about medical bills or the reason you have them. The debt that often results from medical bills can create financial strain — even for people with savings earmarked for extra expenses. Tax relief can offset these costs by allowing you to lower your tax burden so that you pay less income tax and keep more of your money.
- Can You Write Off Medical Expenses?
- How To Calculate Your Tax Deduction for Medical Expenses
- What Medical Expenses Are Deductible?
- Expenses That Don’t Count as Tax Deductions
- What Are Other Tax-Advantaged Ways To Deal With Medical Expenses?
- Find the Best Way To Save On Medical Expenses This Year
Yes, you can claim medical expenses on taxes. For tax year 2019, the IRS permits you to deduct the portion of your medical expenses that exceeds 10% — not 7.5%, as in 2018 — of your adjusted gross income, or AGI.
But not everyone will be able to claim medical expenses on their taxes. It only works if you itemize deductions instead of taking the standard deduction. “To take advantage of this, you must itemize your medical expense deductions on your IRS 1040. You simply attach a Schedule A where you report the total medical expenses you paid. … Make sure that the total of all itemized deduction is more than the standard deduction or it won’t benefit you,” said Danielle K. Roberts, Medicare insurance expert and co-founder of Boomer Benefits.
You can deduct the amount you spend on certain types of medical care and products when that amount is above 10% of your AGI. Your AGI is your income after adjustments for deductions like student loan interest, individual retirement account contributions and alimony payments. Use the following steps to calculate your medical expense deduction:
- Calculate your adjusted gross income.
- Multiply your AGI by 0.1, which is 10%. Your expenses must exceed this amount to be deductible.
- Add up all your medical expenses for the year.
- Subtract your expenses from the product of your AGI times 0.1 to find your actual deduction.
Here’s a real-world example: Say you have an AGI of $50,000. Multiply $50,000 by 0.1 to get $5,000. You’d need over $5,000 in medical expenses to claim a deduction. With a hypothetical $6,500 in medical expenses, subtracting your $5,000 base amount from the $6,500 in expenses equals $1,500, which is your deduction if you choose to itemize rather than take the standard deduction.
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The IRS defines medical care expenses as payments for medical treatment, medical supplies, medical equipment, and diagnosis, mitigation and prevention of disease. Examples of medical expenses approved by the IRS include:
- 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 are included in Box 1 of your Form W-2
- 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
- Medical expenses incurred by fertility treatments, pregnancy test kits and sterilization
- Insulin and prescription drugs
- Medical equipment and supplies like glasses, contacts, hearing aids, crutches and similar medical devices
- Guide dogs for the blind or deaf
- 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
For a complete list of deductible medical expenses, check IRS Publication 502 for answers to your tax questions. It’s also important to note that the list provided by the IRS is not comprehensive and other medical expenses could still qualify. The publication indicates that even if an expense is not included on the list, it might still qualify as long as it meets the provided definition of a medical expense:
“Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments 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.”
These deductions are used when filling out Schedule A (Form 1040) for itemized deductions.
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Of course, not every expense you see as medically related is one that the IRS would agree with. To avoid trouble with the taxman, don’t try to deduct nonqualifying medical expenses. You can’t include medical expenses for which you were reimbursed, for example. That’s true whether you were paid back for medical expenses you incurred or the payment was made directly to the hospital or doctor. Here’s a partial list of other expenses that won’t qualify, according to the IRS:
- Funeral expenses
- Elective cosmetic surgery
- Teeth whitening
- Activities that your doctor recommends to improve your general health, such as a vacation or dancing lessons
- Illegal treatments or substances
- Nutritional supplements
- Toothpaste and other toiletries
- Nonprescription drugs except insulin
- Nicotine patches or gum
Unfortunately, not everyone will be able to itemize their medical expenses. But other tax-advantaged options are available that can help you save on these costs. Here are a few to consider.
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 a high-deductible health plan, or HDHP, which is a health plan that only covers preventative services before the deductible.
Although HSA funds aren’t usually allowed for premium payments on your HDHP, you can use the money to defray other healthcare expenses related to your HDHP, such as deductibles, copayments and coinsurance. Plus, any 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.
“You can always use money in this account to pay for qualifying medical expenses and it’s a great way to save for your future healthcare costs in retirement as well because once you turn 65, you can use money in your health savings account to also pay for Medicare premiums and long-term care expenses,” Roberts said.
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. FSA funds may not be used for health plan insurance premiums but can be directed toward coinsurance or copayment costs. In general, you must use the funds in your FSA account 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 $500 in unused funds to the following year.
Because you’ll inevitably lose any unused funds at the end of the year or grace period, it’s important to only contribute an amount that you project you’ll spend within the year.
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. HRAs are different from HSAs or FSAs in that only your employer — not you — may contribute to them. One advantage of this type of account is that unused dollar amounts can be rolled over for use in the following year.
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 the event that you do decide to itemize, make sure you only include appropriate expenses to prevent an IRS tax audit.
You can also look into other tax-advantaged ways to save on medical expenses, such as health savings accounts, flexible spending accounts and health reimbursement arrangements — solutions that could shoulder at least part of the financial burden. But don’t expect to be able to deduct these expenses on your tax return if you take advantage of an FSA or HRA. HSA expenses are the only ones that the IRS deems deductible.
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