If your health care costs were substantial last year, you might be able to claim a deduction that lowers your taxable income, according to the Internal Revenue Service (IRS).
The rules for writing off medical and dental expenses are specific, though. You can’t just deduct every copay or over-the-counter medication. To benefit, you must itemize your deduction — as opposed to taking the standard deduction, as most people do — and your total eligible expenses must exceed an income-based threshold.
Here’s how the deduction works and which expenses qualify.
The 7.5% rule
First, you need to know your adjusted gross income (AGI), which is your total income minus certain adjustments, including deductions for interest paid on student loans deductions, retirement account contributions and spousal support (alimony) payments. You can only deduct the portion of your medical and dental expenses that exceeds 7.5% of your AGI.
For example, if your AGI is $50,000, your threshold is $3,750. If you spent $5,000 on qualified medical care, you can deduct $1,250 — the amount over the threshold. But if you spent $3,000, you cannot claim a deduction because you did not cross the 7.5% line.
This deduction applies to expenses you paid for yourself, your spouse and your dependents.
Eligible expenses
The IRS allows deductions for costs related to the “diagnosis, cure, mitigation, treatment, or prevention of disease.” This covers standard payments to doctors, dentists, surgeons and psychiatrists. It also includes payments for the following:
- Insurance premiums: You can deduct premiums for medical or long-term care insurance if you pay them with after-tax dollars. You can’t deduct premiums paid by your employer or premiums paid pre-tax through a workplace plan.
- Prescriptions: Insulin and prescribed drugs are deductible.
- Eyes and ears: Payments for prescription eyeglasses, contact lenses and hearing aids qualify.
- Transportation: You can deduct the cost of traveling to and from medical care. This includes taxi fares, ambulance fees, tolls, parking and your personal car expenses (gas and oil or the standard medical mileage rate).
- Specialized treatments: Acupuncture, inpatient alcohol or drug addiction treatment and smoking-cessation programs are eligible.
- Weight loss: If a physician diagnoses you with obesity or another specific disease, fees for a weight-loss program are deductible.
- Long-term care: Inpatient hospital care or nursing home care is deductible if medical care is the principal reason for being there.
What you can’t deduct
The IRS explicitly excludes the following:
- Reimbursed expenses: You can’t deduct costs covered by insurance or reimbursed by an employer.
- General health items: Nonprescription medicines (except insulin), vitamins, toothpaste and toiletries are not deductible.
- Cosmetic procedures: Most cosmetic surgery does not qualify unless it is necessary to correct a deformity arising from a congenital abnormality, personal injury or disfiguring disease.
- Nicotine replacement: Over-the-counter nicotine gum and patches are not eligible.
A note for the self-employed
If you’re self-employed and turned a net profit, you may be eligible to deduct 100% of your health insurance premiums as an adjustment to income. This is better than an itemized deduction because it lowers your AGI directly, and doesn’t require you to meet the 7.5% threshold.
Any medical expenses not covered by this specific self-employed deduction can still be claimed as itemized deductions as long as they meet the standard requirements.
Maximizing your return
Taking this deduction requires you to itemize rather than taking the standard deduction.
For many taxpayers, the standard deduction offers a larger tax break with less paperwork. However, if you had a major surgery, paid for long-term care or managed a chronic illness this year, the medical expense deduction could save you significant money.
Run the numbers both ways to see which method puts more cash back in your pocket.
Learn more about what to expect this tax season in “6 Groups Who Can Expect a Bigger Tax Refund This Spring (It’s Practically Everyone).”
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