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What Medical Expenses are Tax Deductible?

Those living without insurance, or enrolled in plans with high deductibles, understand that medical expenses can be detrimental to your finances. Even with a good health insurance plan, the expenses can add up. There may be certain things that fall outside of your coverage, emergencies that require high co-payments, and chronic conditions where small amounts quickly turn into one large lump sum. There’s a reason that so many people decide to go untreated, but taking care of your health, and the health of your family, shouldn’t have to be such a heavy burden. To help Americans across the country, the Internal Revenue Service (IRS) allows taxpayers relief from some of their medical expenses. To help you better understand what you can and can’t write off, we’re going to answer a question we hear often: what medical expenses are tax deductible?

Are Medical Expenses Tax Deductible?

Setting financial goals is important to long-term success. Unfortunately, medical emergencies happen and can cause huge setbacks. To make sure that you’re doing everything you can to increase your tax refund, you should understand how medical expenses and your taxes.

With that being said, there are certain medical expenses that can be written off and therefore, tax deductible. Others cannot. There is a list of qualifying expenses that can be deducted, along with surrounding prescriptions and travel-related expenses.

Tax Deductible Medical Expenses

The types of medical expenses that are tax deductible are fairly broad. They include payments for any diagnosis, cure, mitigation, treatment, or prevention of a disease. Tax deductible medical expenses can also include treatment for an ailment that’s effecting the structure or function of your body. If you need to fill prescriptions including, but not limited to, insulin, contact lenses, hearing aids, guide dogs, dentures, and glasses, you can add them to your deductibles. Any travel required to get adequate care is also deductible. This includes mileage, any parking fees, bus fare, or cabs as needed.

Some lesser-known medical expenses that are deductible are those related to addiction programs, acupuncture, and weight-loss programs for doctor-diagnosed diseases. A full list can be found within the IRS Publication 502.

What Medical Expenses are not Tax Deductible?

While the list of approved deductibles seems fairly inclusive, there are certain things that will not be considered. The biggest category is for any cosmetic procedure that is not directly related to your health. It also includes nonprescription medicines such as supplements or herbs, nicotine patches, health club fees, toiletries or cosmetics, toothpaste a trip, program, or retreat aimed at improving health, and any funeral or burial expenses. You also cannot deduct medical expenses that were paid in a different year.

If you’re unsure about whether or not a medical expense will be deductible, visit this IRS page for more information.

Understanding Tax Deductible Medical Expenses

According to the IRS, you may be able to deduct expenses paid during a taxable year covering medical and dental care for yourself, your spouse, and your dependents. However, you can only deduct the amount of your total medical expenses that exceed 7.5% of your adjusted gross income (AGI). Your AGI is your taxable income minus any income adjustments such as IRA contributions or student loan interest. Also, for each tax filing, you can only include medical expenses that were paid during that year and they must be adjusted based on any reimbursement for deductibles or co-pays.

To clarify, let’s consider someone who made an AGI of $50,000 and encountered $6,348 of medical expenses from January 1, 2020 until December 31, 2020. $50,000 multiplied by 0.075 (7.5%) is $3,750. This means that only medical expenses that exceed $3,750 can be deducted. In this example, that would mean that your medical expense deduction is $2,598 ($6,348 – $3,750). If you’re unsure about what your AGI is, or how to determine your medical expense deduction, consider working with a certified tax coach.

If you’re self-employed, you may be eligible for self-employed health insurance deduction. This is different from traditional tax deductions in that the total sum of your out-of-pocket expenses go towards adjusting your gross income rather than creating an itemized deduction. This can include premiums for your health insurance policy along with other approved medical expenses. For more information on self-employed health insurance deduction, start early so you can properly track everything. Consider scheduling a mid-year check in for the best results.

How to Get the Most out of Your Medical Expense Deduction

Depending on your health insurance plan and AGI, you may not have any eligible medical expenses. However, if you know that out-of-pocket medical costs are going to exceed that 7.5%, you’ll want to make sure you’re doing everything you can to maximize your tax refund.

The first thing to note is that medical expenses don’t only apply to what’s covered by a traditional health insurance plan—it also includes vision and dental care. This means that if you don’t have vision or dental insurance, you can likely include any appointments and subsequent treatments on your medical deductibles. If you’re seeing a psychiatrist or psychologist, co-payments are covered and if your health insurance plan doesn’t provide any coverage, you can usually apply the entire cost of each session to your deductibles. If you’re currently paying your monthly insurance payments out-of-pocket rather than through an employer-provided plan, these payments can be deducted. All of these stipulations apply to you, your spouse, and any dependents you claim. These costs can add up quickly and make a big difference on your taxable income, so make sure that you keep track as the year passes. However, if you were reimbursed for any of these expenses, they cannot be filed as a tax deduction.

In order to get the most out of your deductions, make sure that you’re tracking your mileage for appointments or anytime you travel to pick up prescriptions. The mileage rate changes every year but can add up—especially if you need to travel far.

The one thing that many people have difficulty with is understanding the difference between standard deductions and itemized deductions. Standard deductions work to lower your income by one fixed amount and varies depending on your filing status. It allows you to deduct regardless of your qualifying expenses and makes the process a little more straightforward. Itemed deductions lower your taxable income based on a list of eligible expenses. This number can end up being larger than the standard deduction, which is why it’s important to keep track of things throughout the year. If you regularly have expenses that qualify for deductibles, filing an itemized deduction is going to result in the biggest benefits.

Getting Help from the Professionals

If you’re still unsure about which medical expenses are deductible, or need help better understanding your situation, call the professionals at Del Real Tax Group today. Our team is comprised of experienced tax professionals who work hand-in-hand with our clients to make sure that you’re getting the most out of your tax returns every year. We specialize in small businesses and want to make sure that you’re not overpaying. That’s why our goal is to make sure our clients get the best attention possible while saving thousands of dollars of taxes each year. 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