How to Write off Medical Expenses as a Tax Deduction

Preparing your income taxes? You’re probably looking for as many tax deductions as possible. Medical care is expensive, so if you can write off the cost of your health care, you can potentially lower your tax bill.

However, IRS rules are complex and detailed. You need to understand whose medical expenses are tax deductible, what types of expenses are deductible, and whether or not you have enough tax-deductible medical expenses to make it worth your while.

Especially since the Tax Cuts and Jobs Act of 2017 significantly increased the standard deduction, most filers end up taking the standard deduction instead of itemizing deductions, which means they're not deducting medical expenses.

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Two Ways to Write off Medical Expenses

The two ways to write off medical expenses are:

  1. Claim them as a tax deduction when you itemize your deductions. This is by far the most common way to write off medical expenses, and a wide range of medical expenses—including out-of-pocket costs under your health plan as well as services that aren't covered by health insurance—can be counted. You must use Schedule A of Form 1040 to take the medical expense deduction. If you take the standard deduction rather than itemizing your deductions (which is what nearly 90 percent of tax filers do ), you can’t write off your medical expenses unless you qualify to use the second way.
  2. Claim them as an adjustment to your income. This lowers your adjusted gross income making it look like you made less money. But the deduction is generally limited to the premiums paid by self-employed people for health, dental, and long-term care insurance.

In this article, we'll look at the first method. It allows you to write off a broad range of medical expenses if your total medical costs are high enough, and there's no requirement that you be self-employed.

Do You Have Enough Medical Expenses to Make It Worth Your While?

In order to claim a medical expense tax deduction on Schedule A, your expenses have to add up to at least 7.5% of your adjusted gross income. [Note that this threshold will increase to 10% as of 2021 unless Congress changes the rules again. Changes have been made several times in recent years: First by the Affordable Care Act, which raised the threshold to 10%, then by the Tax Cuts and Jobs Act, which temporarily lowered it to 7.5%, and most recently, by the Further Consolidated Appropriations Act, 2020, which extended the 7.5% threshold through the end of 2020.]

You only get to deduct the expenses that exceed the 7.5% threshold. For example, if your adjusted gross income is $100,000 and you have $12,000 in qualified medical expenses, you’ll get to deduct $4,500. The first $7,500 of your medical expenses is used to meet the 7.5% threshold. The remaining $4,500 can be claimed as a tax deduction for medical expenses.

Which Medical Expenses Count?

Your opinion about what constitutes a medical expense may differ from the IRS’s opinion. According to the IRS, “Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.”

You can’t claim expenses that your health insurance company paid, or expenses reimbursed by your pre-tax flexible spending account or health savings account. In other words, no "double-dipping." But the out-of-pocket costs (deductible, copays, and coinsurance) that you incur under your health insurance plan can be counted as eligible medical expenses.

If you received medical care during a given year but paid for the care in a different year, you claim the expense in the year you paid for it, not the year you received the service. For example, if you received treatment in autumn of 2019 but didn’t pay for that treatment until January of 2020, you’d claim the medical expense on your 2020 taxes, filed by April 15, 2021 (but you generally can't deduct expenses for a given year if you're prepaying them and are going to receive the medical care in a future year).

In some cases, you can claim the cost of health insurance as a tax-deductible medical expense. As noted above, if you're self-employed, you have the option of deducting the premiums that you pay yourself (not including any premium subsidies you receive in the exchange, or premiums that anyone else pays on your behalf). In that case, you don't have to itemize your deductions. But for folks who aren't self-employed, health insurance premiums can be lumped in with other medical expenses to reach the deductibility threshold (7.5% of adjusted gross income).

Some examples of common tax-deductible medical expenses includes:

  • Your health insurance deductible, copayments, and coinsurance
  • Your out-of-pocket costs for prescription drugs (This doesn’t include medical marijuana or prescription drugs shipped into the country illegally.)
  • Over-the-counter medications and menstrual products. The inclusion of these items as qualified medical expenses was a change made in 2020 under the CARES Act.
  • Unreimbursed psychotherapy or psychoanalysis expenses
  • Bandages and Band-Aids
  • Contact lenses (and contact lens solution) and glasses used to correct vision
  • Hearing aids and hearing aid batteries
  • Breast pump supplies
  • In vitro fertilization costs
  • Pregnancy test kits
  • Long-term care expenses (qualifying rules apply) and some long-term care insurance premiums (there is a limit on how much can be deducted; the IRS adjusts this limit each year, and it varies depending on how old you are).

Whose Medical Expenses Count?

Generally, you can claim a tax deduction for your own medical expenses, your spouse’s expenses, and your dependents’ expenses. But keep in mind that it only makes sense to itemize your deduction if the total amount you're itemizing—including medical expenses and other itemized deductions—exceeds the standard deduction that you could take without itemizing anything. As noted above, most tax filers are better off with the standard deduction, because the total amount of deductions that they would itemize wouldn't exceed those amounts.

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Article Sources
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