How Medical Expense Deductions Can Lower Your Tax Bill
Key takeaways:
You can deduct certain unreimbursed medical expenses that exceed 7.5% of your adjusted gross income if you itemize deductions on your tax return.
Eligible medical expenses include payments for hospital visits, home improvements like ramps, prescription medications, vision care, dental treatments, and mental health services.
Medical expense deductions can lower your tax bill by reducing your taxable income.
With the tax season upon us, many people are looking for deductions. One category of expenses that could lead to tax savings is healthcare. The average spending per person on healthcare expenses was $13,493 in 2022, up 4.1% year over year.
The IRS allows deductions for many medical procedures and items. However, there is an income limitation. You also have to itemize your deductions to qualify. So many people may not be able to claim medical expense deductions, since itemized deductions typically don’t exceed the standard deduction. However, if you have substantial medical costs, itemizing deductions could save you a lot on your taxes.
Are medical expenses tax deductible?
You can deduct unreimbursed medical and dental expenses for yourself, your spouse, and your dependents. Some of the costs include those for medical treatments and medications, medical equipment, hospital stays, mental healthcare, fertility treatments, and dental care. The deduction is for expenses that exceed 7.5% of your adjusted gross income (AGI).
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For example, suppose your AGI is $50,000, and you have $5,000 in medical expenses. Your AGI threshold is $3,750, or 7.5% multiplied by $50,000. You can deduct $1,250, which is $5,000 in medical expenses minus the $3,750 AGI threshold.
Which medical expenses are deductible?
The IRS website defines qualified medical expenses as costs for the diagnosis, cure, mitigation, treatment, or prevention of disease.
The following are examples of qualified medical expenses for the 2023 tax season:
Crutches
Drug-addiction services
Fees for doctors, dentists, surgeons, psychiatrists, psychologists, and chiropractors
Fertility treatments
Guide dog
Home care
Home improvements like exit ramps, wider doorways, and lifts for medical needs
Lab fees
Prescription medications and insulin
Prescription glasses and contact lenses
Transportation to a healthcare or dental facility
Unreimbursed healthcare, dental, and Medicare premiums
Weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician
Wheelchair
X-rays
Are COVID-19-related medical expenses tax deductible?
In 2021, the IRS announced that personal protective equipment for the prevention of COVID-19 is tax deductible. This includes masks, hand sanitizers, and sanitizing wipes.
Medical expense deductions by state
More than half of U.S. states have medical expense deductions for income taxes. But some state rules differ from the federal rules. Check with your state laws to determine how to manage medical expense deductions.
For example, if you file a tax return for New York, the AGI threshold is 10%. If you claimed itemized deductions for medical and dental expenses on your federal income tax return, you will enter this amount on the state return. If not, you will use the federal rules for qualified expenses.
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What medical expenses are not tax deductible?
The IRS prohibits deductions for medical expenses that are for general health, cosmetic purposes, or nonprescription medications.
You also cannot deduct health insurance premiums paid with pre-tax dollars through an employer's health plan or paid by your employer. The same goes for contributions to health savings accounts (HSAs) and flexible spending accounts (FSAs). The reason is that you fund these accounts with pre-tax dollars. The exception is if you fund an HSA with after-tax dollars when you are self-employed.
Some other medical expenses that aren’t deductible:
Costs for a trip or program for the general improvement of your health
Cosmetic surgery (except if related to an injury, disease, or congenital abnormality)
Diet food
Nicotine gum and nicotine patch (unless there is a prescription)
Nonprescription medication
Nursing care for a healthy baby
Reimbursed health insurance premiums
Toiletries
Toothpaste, floss, or mouthwash
Vacations that are mainly for general health purposes
Vitamins
Weight-loss program (unless there is a prescription)
You also cannot deduct qualified medical expenses paid in a different year than the tax year you’re filing for.
How do medical expense deductions work?
First, you need to calculate your AGI. This is your gross income minus adjustments to your income.
Gross income includes many items like:
Business earnings
Capital gains
Dividends
Interest
Self-employment income
Taxable retirement distributions
Taxable Social Security benefits
Wages and salaries
Some of the adjustments to your income may include:
Alimony payments
Educator expenses
Retirement contributions
Student interest
Suppose you have wages of $50,000, interest of $300, dividends of $500, and capital gains of $2,500. Your gross income is $53,300. From this total, subtract the $5,000 in retirement contributions and $300 in student interest. Your AGI is then $48,000 ($53,300 - $5,300).
Then, multiply the 7.5% threshold by the AGI, which is $3,600. This means that you can deduct medical expenses above this amount.
Standard deduction vs. itemized deduction
You can either use the standard deduction or itemized deduction on your Form 1040. Each reduces the amount of money subject to taxes. Many people use the standard deduction because it is usually a higher amount.
Filing status | 2024 standard deduction | 2023 standard deduction |
Single | $14,600 | $13,850 |
Married filing separately | $14,600 | $13,850 |
Head of household | $21,900 | $20,800 |
Married filing jointly | $29,200 | $27,700 |
Source: IRS
To take the medical expense deduction, you must itemize your deductions. This usually means that your itemized deductions will need to be higher than the standard deduction.
If your spouse has a large amount of medical expenses, they can file separately. This may result in higher tax savings, but the calculations are complex. It’s recommended to seek the help of a tax professional.
Claiming medical expense deductions
You will calculate your AGI on your 1040 tax return. On lines 1 to 8, include your gross income. You use Schedule 1 to show your adjustments to income, which are on the second page. You include the total on line 10 of your 1040. The difference between the gross income and adjustments to income is your AGI.
To itemize deductions, you will fill out Schedule A. You add up your qualified medical expenses and enter them on line 1. Lines 2 and 4 will make the calculation for the 7.5% threshold. You will then enter any other itemized deductions. Next, you include the total on line 12a of your 1040.
Maintaining your medical bills and records
The IRS requires that you keep receipts. If not, you will not be able to prove your deductions if you are audited. This could lead to paying back taxes, penalties, and interest.
You need documentation that shows:
Who you paid and the date
The amount you paid
The medical care you received or items purchased
Who received the treatment
Reason for the care
You can use your smartphone to scan or take photos of your receipts and documents. There are also mileage apps that can track your mileage. You should maintain these records for at least 3 years.
The bottom line
Itemizing deductions on your tax return can be a smart way to lower your tax bill. If you meet the 7.5% AGI threshold, you can deduct expenses like surgeries, prescription medications, fertility treatments, and acupuncture. But not all medical expenses are deductible. It’s a good idea to consult with a tax professional to help you determine the best actions for your situation.
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References
Centers for Medicare & Medicaid Services. (2023). National health expenditure data: Historical.
Healthcare.gov. (2021). Adjusted gross income (AGI).
Internal Revenue Service. (2021). Face masks and other personal protective equipment to prevent the spread of COVID-19 are tax deductible.
Internal Revenue Service. (2022). IRS provides tax inflation adjustments for tax year 2023.
Internal Revenue Service. (2023). Form 1040: U.S. individual income tax return.
Internal Revenue Service. (2023). IRS provides tax inflation adjustments for tax year 2024.
Internal Revenue Service. (2023). Schedule 1 (form 1040): Additional income and adjustments to income.
Internal Revenue Service. (2023). Schedule A (form 1040): Itemized deductions.
Internal Revenue Service. (2024). Publication 502 (2023), medical and dental expenses.
New York State Department of Taxation and Finance. (2023). Form IT-196 New York resident, nonresident, and part-year resident itemized deductions tax year 2023.
New York State Department of Taxation and Finance. (2023). Instructions for Form IT-196 New York resident, nonresident, and part-year resident itemized deductions.
This article is solely for informational purposes. This article is not professional advice concerning insurance, financial, accounting, tax, or legal matters. All content herein is provided “as is” without any representations or warranties, express or implied. Always consult an appropriate professional when you have specific questions about any insurance, financial, or legal matter.
