19% of US families have trouble paying medical expenses. Have you ever thought about what you would do if you had to pay an expensive medical bill? It helps to save for these kinds of events, but it could also help if you knew more about saving on your medical expenses.
Keep reading to learn more about whether medical expenses are tax deductible.
- 1 Can You Deduct Medical Expenses?
- 2 Figuring Out Your Deduction
- 3 The Effect of the Tax Cuts and Jobs Act
- 4 Non-Deductible Medical Expenses
- 5 Claiming Medical Expense Tax Deductions
- 6 Eligible Medical Expenses
- 7 Claiming the Medical Expense Tax Deduction
- 8 Should I File for a Medical Expense Tax Deduction?
- 9 Record Keeping for Medical Tax Deductions
- 10 Medical Expense Limitations
- 11 Another Example of a Medical Tax Deduction
- 12 Commonly Overlooked Medical Deductions
- 13 Find Out More About Saving Money
- 14 Learn More
Can You Deduct Medical Expenses?
Medical bills can take a serious bite out of your budget. Today, you must take advantage of every strategy possible to avoid financial trouble.
A growing number of people are wondering how they’d manage medical bills since the start of the pandemic. Also, there’s one thing many of these individuals want to know. They’re wondering if medical expenses are tax deductible.
Consumers spent trillions of dollars on health care in 2020. Luckily, some medical bills which aren’t covered by your insurance are tax deductible. By deducting them from your taxes, you can reduce your tax bill.
Understanding Tax Deductible Medical Expenses
You might deduct expenses for unreimbursed drug prescriptions. Alternatively, you might claim a deduction for appliances such as contacts or glasses. You may also claim a deduction for prosthetics like false teeth or hearing aids.
The IRS also lets you deduct expenses for things like travel for medical care. These expenses might include the mileage you put on your car. They could also include what you pay for parking fees or even bus fare.
Am I Eligible for a Medical Tax Deduction?
Millions of Americans struggle to pay health care debt. These kinds of medical expenses can add up fast. For example, you or your spouse or dependents may have costly medical bills.
In this instance, it’s important to keep your receipts. They could serve as important documents that can help you save money when you file your taxes.
You might also consider itemizing deductions instead of claiming the standard deduction at tax time. By doing so, you can deduct various medical and healthcare-related expenses.
With this in mind, however, it’s important to understand that you can’t deduct all the medical expenses you’ve paid. For the 2021 tax year, for instance, you can deduct medical expenses that total no more than 7.5% of your total adjusted gross income for the year.
Figuring Out Your Deduction
Before you can determine your deductions, you must find your adjusted gross income (AGI). Your AGI is your taxable income minus any adjustments.
These adjustments might include your contributions to a traditional IRA. They could also include deductible student loan interest.
Imagine that your AGI is $45,000. Also, you had $5,475 in medical expenses throughout the year.
First, you’ll multiply $45,000 by 0.075, or 7.5%. This calculation would give you $3,375. In other words, you can only deduct expenditures that exceed this amount for your detailed deductions.
With this in mind, you’d subtract $3,375 from $5,475. This calculation would give you a medical expense deduction of $2,100.
The Effect of the Tax Cuts and Jobs Act
The government introduced the Tax Cuts And Jobs Act in 2017. At that time, it doubled the standard deduction of the previous year.
Now, the standard deduction for single taxpayers is $12,550. However, married couples filing jointly can deduct up to $25,100. Usually, a taxpayer would use this amount to figure out whether they should itemize or take the standard deduction.
It only makes sense to itemize if your deductions are higher than the standard deduction. If not, you shouldn’t itemize your deductions, which is the only way you can receive medical expense deductions.
In some instances, it can prove challenging to figure out whether you should itemize your deductions. In this case, it might prove wise to work with a local accountant.
Medical Deductions and COVID-19
Fortunately, the cost of any treatment related to COVID-19 is tax deductible as an itemized deduction. You’d treat these expenses just like ordinary medical expenses.
Medicare, Medicaid, or your private insurance should cover your treatment for COVID-19. However, you may still need to pay deductibles or co-payments.
Still, many private insurers have agreed to cover all COVID-19 related treatment costs. These costs include deductibles and co-payments.
You may also have travel expenses for COVID-19 treatment. If so, you can also claim them as deductions if you itemize your tax return.
Non-Deductible Medical Expenses
You may receive reimbursement for your medical expenses. For instance, your employer or insurer might cover the cost of treatment. In these instances, you can’t deduct these expenses from your taxes.
Also, the IRS typically doesn’t allow deductions for cosmetic procedures. You also usually can’t deduct the cost of non-prescription drugs. However, the IRS does make an exception in this regard for insulin.
You also can’t deduct medical expenses from a previous tax year. Furthermore, you may pay for your medical expenses using a flex spending account. If so, you can’t deduct those expenses because you already have a tax advantage using this kind of special spending account.
Claiming Medical Expense Tax Deductions
Again, you must itemize your deductions to claim medical expenses. If you itemize your deductions, you cannot claim the standard deduction.
In most instances, you wouldn’t itemize your deductions unless your itemized deductions exceed the standard deduction. If you’re detailing your deductions, you will need to use the IRS 1040 form.
When you file your taxes, you’ll also need to attach Schedule A. Using the Schedule A form, you’d report the total expenses you’ve paid during the year.
Eligible Medical Expenses
You can go over a full list of tax deductible medical expenses by reviewing IRS Publication 502. Otherwise, there are a few medical services that most people claim as deductions. These services include payments to:
You might also write off your payments to other medical practitioners.
You could also write off payments to hospitals or nursing facilities. You could even write off your payments to an addiction program. For instance, you could write off your expenses for a smoking cessation program if you were to itemize your taxes.
More Qualifying Medical Expenses
You could also deduct your expenses for weight loss if you have a physician-diagnosed condition such as obesity. However, diet plans and health club fees usually don’t count as qualifying tax deductible medical expenses.
Again, you can typically claim a tax deduction for your insulin supply if you have diabetes. You may also claim a tax deduction on your prescription drug payments.
Suppose a physician diagnoses you with a chronic condition, and you attend a medical conference to learn more about it. In that case, you can deduct your expenses for admission and transportation to the conference. However, you can’t deduct things like meals and lodging.
You can also deduct the cost of essential aids such as dentures, reading or prescription glasses, or contacts. You can also write off medical equipment like hearing aids, crutches, or wheelchairs. You could even write off expenses related to service animals.
Claiming the Medical Expense Tax Deduction
Again, you must itemize instead of taking the standard deduction if you want to deduct medical expenses from your taxes. Of course, doing so means spending more time on tax preparation.
However, it’s worth it if your standard deduction is less than your itemized deductions. You’re better off doing the work and saving money.
Conversely, you may find the standardized deduction is more than your itemized deductions. If so, it makes more sense to save time and work and take the standard deduction.
Should I File for a Medical Expense Tax Deduction?
If you’re trying to figure out if it’s worth claiming itemized medical expenses, you should also consider your filing status. For example, you could claim a bigger medical expense deduction if you’re married but file separately.
However, this is a risky tactic. If you file a separate tax return for your spouse, you may lose other tax relief.
For instance, suppose you’ve accumulated $6,000 in medical bills. You plan to file jointly with a combined AGI of $100,000.
Only the part of your medical bill over 7.5% of your joint income is tax deductible. This amount comes to $7,500. With this in mind, none of your medical expenses qualify for a deduction.
Considerations for Couples
This time, imagine that you file your income taxes separately from your spouse. Your AGI is $75,000. Meanwhile, your spouse’s AGI is $25,000.
The medical bills belong to your spouse. For this reason, they can deduct anything over 7.5% of their $25,000 AGI.
In other words, they can deduct any expenses over $1,875. In this scenario, they can deduct $4,125 in medical expenses by filing separately. Again, however, where it gets tricky here is figuring out whether this benefit outweighs the loss of other tax breaks you might receive for filing jointly.
Record Keeping for Medical Tax Deductions
No matter what you do, hang onto your receipts for medical expenses. For example, always ask for receipts and records from your pharmacy. Also, make sure you do the same with any of your care providers.
In most cases, if you’re already benefiting from medical expense tax deductions, you’re most likely managing some kind of chronic condition. In other words, you’re dealing with an ongoing health issue. In this case, it is vital to do an exceptional job of tracking each expenditure you incur.
Medical Expense Limitations
You should also have a look at your state threshold for medical expense deductions. For instance, you could live in a state with a lower AGI threshold. If so, you can save money on your taxes.
For example, the New Jersey AGI threshold for the medical expense deduction is only 2%. As a result, New Jersey taxpayers have a better chance of getting a break on their income taxes.
If you don’t know your state medical expense deduction threshold, you can end up leaving money on the table.
Another Example of a Medical Tax Deduction
The IRS allows you to deduct unreimbursed qualified medical and dental expenses. Again, they must exceed 7.5% of your AGI.
Imagine you have an AGI of $50,000. Your family has $10,000 in medical bills.
In this case, you may claim any expenses in excess of $3,750. In other words, you can deduct $6,250 for that tax year.
Also, remember you can deduct medical expenses that are not your own. If you paid medical expenses for a spouse, dependent, or qualifying child or relative—you can deduct them.
Commonly Overlooked Medical Deductions
Some deductible medical expenses are obvious. For example, some qualifying medical deductions include doctor’s visits, hospital stays, and diagnostic testing. These are all qualifying tax deductible medical expenses.
Yet, some medical tax deductions are easy to miss. Let’s have a look at a few treatments you might want to consider for deductions when paying for treatment for you or your family.
Alternative treatments like acupuncture are definitely tax deductible. Also, many people don’t think to deduct adaptive equipment like wheelchairs, commodes, or other medical aids.
You can’t write off diapers or babysitters. However, you can write off newborn equipment like breast pumps or other supplies that assist in lactation.
Other Medical Deductions You May Not Have Considered
Most people also overlook home improvements or capital expenses. For example, you might install permanent features or renovate your home.
However, you did these projects to accommodate a disability. In that case, you may find that the costs of the renovations are fully deductible.
These kinds of projects include building ramps and widening doorways. They may also include lowering or modifying kitchen cabinets or adding support bars. However, you can only deduct expenses for costs above any increase in your home’s value due to the renovation.
Find Out More About Saving Money
Many Americans face challenges in staying on top of medical bills. Now, however, you have a better understanding of tax deductible medical expenses. If you’re looking for ways to save on taxes, Tax Savers Online can help.
Please feel free to read our article on how families can save on taxes.