Do Medical Expenses Reduce Taxable Income? Absolutely, medical expenses can reduce your taxable income in the U.S., offering a valuable opportunity for financial relief. At income-partners.net, we want to ensure you have all the information to navigate the complexities of tax deductions, especially those related to healthcare costs, by strategically planning and leveraging medical expense deductions, you can significantly lower your tax liability and improve your overall financial health. Let’s delve into how medical expenses can translate into tax savings, exploring eligible expenses, deduction limits, and strategies to maximize your benefits. Understanding these nuances is crucial for optimizing your tax return and making informed financial decisions.
1. What Qualifies as a Medical Expense for Tax Deduction Purposes?
Yes, many healthcare-related expenses can qualify as medical deductions, helping to reduce your taxable income. The IRS allows you to deduct costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any part or function of the body, so understanding what expenses are eligible is critical.
Medical expenses encompass a wide range of costs, including payments for medical services rendered by physicians, surgeons, dentists, and other medical practitioners. The IRS also allows you to include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Expenses must be primarily to alleviate or prevent a physical or mental disability or illness. They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.
Here is a detailed list of items you can include in figuring your medical expense deduction:
| Category | Examples |
|---|---|
| Medical Services | Payments to doctors, surgeons, dentists, and other medical practitioners for treatments, diagnosis, and prevention of diseases |
| Medical Equipment and Supplies | Costs for equipment, supplies, and diagnostic devices needed for medical purposes (e.g., bandages, blood sugar test kits) |
| Transportation | Amounts paid for transportation primarily for, and essential to, medical care (e.g., bus, taxi, train, or plane fares) |
| Insurance Premiums | Premiums paid for policies that cover medical care, including hospitalization, surgical services, prescription drugs, and long-term care (subject to limitations) |
| Long-Term Care | Expenses for qualified long-term care services required by a chronically ill individual under a plan of care prescribed by a licensed health care practitioner |
| Capital Expenses | Amounts paid for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent |
It’s essential to keep detailed records of all medical expenses, including receipts, invoices, and any other relevant documentation, to substantiate your deductions when filing your tax return.
2. What Medical Expenses Can I Include This Year?
You can generally include only the medical and dental expenses you paid this year, but not payments for medical or dental care you will receive in a future year. Keep good records and file on time to ensure you can take advantage of these deductions.
If you pay medical expenses by check, the day you mail or deliver the check is generally the date of payment. If you use a pay-by-phone or online account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged.
If you didn’t claim a medical or dental expense that would have been deductible in an earlier year, you can file Form 1040-X, Amended U.S. Individual Income Tax Return, to claim a refund for the year in which you overlooked the expense. Generally, a claim for refund must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later.
3. Can I Deduct Medical Expenses Paid With a Credit Card?
Yes, you can deduct medical expenses charged to your credit card in the year the charge is made, not when you actually pay the amount charged. According to the IRS, what matters is when the charge occurs, not when you settle the bill.
This provision allows you to claim the deduction even if you haven’t fully paid off the credit card balance by the end of the year, providing an immediate tax benefit.
4. How Do Community Property Laws Affect Medical Expense Deductions?
If you and your spouse live in a community property state and file separate returns, medical expenses paid out of community funds are divided equally. If medical expenses are paid out of the separate funds of one individual, only the individual who paid the medical expenses can include them.
Here’s how community property laws affect medical expense deductions:
- Separate Returns: In community property states, if you and your spouse file separate returns, any medical expenses paid out of community funds are generally divided equally between the two of you. Each spouse can include half of the expenses on their respective tax return.
- Separate Funds: If medical expenses are paid out of the separate funds of one spouse, only that spouse can include those expenses when calculating their medical expense deduction. It’s essential to keep records of which funds were used to pay for medical expenses to accurately claim the deduction.
- Joint Returns: When you and your spouse file a joint return, the source of the funds used to pay for medical expenses doesn’t matter. All medical expenses paid during the year, regardless of whether they came from community funds or separate funds, can be combined and included in the medical expense deduction calculation.
5. How Much of the Expenses Can You Deduct?
Generally, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 7.5% of your Adjusted Gross Income (AGI). This threshold allows taxpayers to deduct significant medical expenses while ensuring that only amounts exceeding a certain percentage of their income qualify for the deduction.
6. Whose Medical Expenses Can You Include?
You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them. A person generally qualifies as your dependent for purposes of the medical expense deduction if they meet certain requirements.
Here’s a breakdown of whose medical expenses you can include:
- Yourself: You can always include medical expenses you pay for your own care.
- Spouse: You can include medical expenses you paid for your spouse if you were married either at the time your spouse received the medical services or when you paid the expenses.
- Dependent: You can include medical expenses you paid for your dependent, provided the person was your dependent either when the medical services were provided or when you paid the expenses.
7. What Are The Specific Rules for Deducting Medical Expenses for a Spouse?
You can include medical expenses you paid for your spouse if you were married either at the time your spouse received the medical services or at the time you paid the medical expenses. It also includes scenarios where a spouse received medical treatment before the marriage, but payment was made after the marriage.
8. What Expenses Are Includible for an Adopted Child?
You can include medical expenses that you paid for a child before adoption if the child qualified as your dependent when the medical services were provided or when the expenses were paid. Moreover, if you pay back an adoption agency or other persons for medical expenses they paid under an agreement with you, you are treated as having paid those expenses.
9. How Can Divorced or Separated Parents Claim a Child’s Medical Expenses?
For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Each parent can include the medical expenses they pay for the child if the child is in the custody of one or both parents for more than half the year, and the child receives over half of their support during the year from the parents.
10. What is a Qualifying Relative and How Does It Relate to Medical Expense Deductions?
A qualifying relative is a person who meets specific criteria, allowing you to include their medical expenses in your deductions. The person must be your son, daughter, stepchild, or foster child, or a descendant of any of them; brother, sister, half brother, half sister, or a son or daughter of any of them; father, mother, or an ancestor or sibling of either of them; stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. They can also be any other person (other than your spouse) who lived with you all year as a member of your household if your relationship didn’t violate local law. The qualifying relative must not have been a qualifying child of any taxpayer for the year, and you must have provided over half of their support.
If you are considered to have provided more than half of a qualifying relative’s support under a multiple support agreement, you can include medical expenses you pay for that person.
11. How are Medical Expenses for a Deceased Person Handled?
Medical expenses paid before death by the decedent are included in figuring any deduction for medical and dental expenses on the decedent’s final income tax return. Additionally, the survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent’s estate for the decedent’s medical care as paid by the decedent at the time the medical services were provided.
12. What Specific Medical Expenses Are Includible?
Following is a list of items that you can include in figuring your medical expense deduction.
| Expense Type | Description | Example |
|---|---|---|
| Abortion | The amount you pay for a legal abortion | Payment for a legal abortion procedure |
| Acupuncture | The amount you pay for acupuncture | Fees paid to an acupuncturist |
| Alcoholism Treatment | Amounts you pay for treatment at a therapeutic center for alcohol addiction, including meals and lodging | Costs for inpatient treatment at a rehab center |
| Ambulance | Amounts you pay for ambulance service | Charges for emergency transportation |
| Artificial Limb | The amount you pay for an artificial limb | Cost of a prosthetic arm |
| Artificial Teeth | The amount you pay for artificial teeth | Payment for dentures |
| Bandages | The cost of medical supplies such as bandages | Purchase of bandages for wound care |
| Birth Control Pills | The amount you pay for birth control pills prescribed by a doctor | Prescription costs for oral contraceptives |
| Body Scan | The cost of an electronic body scan | Fee for a full-body MRI |
| Braille Books and Magazines | The part of the cost of Braille books and magazines for use by a visually impaired person that is more than the cost of regular printed editions | Extra cost for Braille versions |
| Breast Pumps and Supplies | The cost of breast pumps and supplies that assist lactation | Purchase of a breast pump |
| Breast Reconstruction Surgery | Amounts you pay for breast reconstruction surgery, as well as breast prosthesis, following a mastectomy for cancer | Costs of reconstructive surgery after cancer |
| Capital Expenses | Amounts you pay for special equipment installed in a home, or for improvements, if their main purpose is medical care | Installation of ramps for accessibility |
| Car Modifications | Cost of special hand controls and other special equipment installed in a car for a person with a disability | Installing hand controls in a car |
| Chiropractor | Fees you pay to a chiropractor for medical care | Payment for chiropractic adjustments |
| Christian Science Practitioner | Fees you pay to Christian Science practitioners for medical care | Payments for Christian Science healing |
| Condoms | The amount you pay to purchase condoms | Purchase of condoms |
| Contact Lenses | Amounts you pay for contact lenses needed for medical reasons, including solutions and cleaners | Expenses for prescription contact lenses |
| Crutches | The amount you pay to buy or rent crutches | Rental fee for crutches |
| Dental Treatment | Amounts you pay for the prevention and alleviation of dental disease | Costs for fillings, braces, or dentures |
| Diagnostic Devices | Cost of devices used in diagnosing and treating illness and disease | Purchase of a blood sugar test kit |
| Drug Addiction Treatment | Amounts you pay for treatment at a therapeutic center for drug addiction, including meals and lodging | Expenses for inpatient drug rehab |
| Eye Exam | The amount you pay for eye examinations | Fee for an annual eye check-up |
| Eyeglasses | Amounts you pay for eyeglasses and contact lenses needed for medical reasons | Cost of prescription eyeglasses |
| Eye Surgery | The amount you pay for eye surgery to treat defective vision | Expenses for LASIK surgery |
| Fertility Enhancement | The cost of procedures performed to overcome an inability to have children | Costs for in vitro fertilization |
| Guide Dog or Other Service Animal | The costs of buying, training, and maintaining a guide dog or other service animal | Expenses for food, grooming, and vet care |
| Health Institute | Fees you pay for treatment at a health institute if prescribed by a physician | Costs for medically necessary treatments |
| Health Maintenance Organization (HMO) | Amounts you pay to entitle you to receive medical care from an HMO | Premiums paid to an HMO |
| Hearing Aids | The cost of a hearing aid and batteries, repairs, and maintenance | Expenses for hearing aid batteries and repairs |
| Hospital Services | Amounts you pay for inpatient care at a hospital or similar institution | Costs for meals and lodging at a hospital |
| Insurance Premiums | Premiums you pay for policies that cover medical care | Payment for health insurance premiums |
| Intellectually and Developmentally Disabled Care | Cost of keeping a person in a special home on a psychiatrist’s recommendation | Expenses for specialized care facilities |
| Laboratory Fees | Amounts you pay for laboratory fees that are part of medical care | Charges for blood tests and lab work |
| Lead-Based Paint Removal | Cost of removing lead-based paints from surfaces in your home to prevent a child from eating the paint | Expenses for lead abatement |
| Legal Fees | Legal fees paid that are necessary to authorize treatment for mental illness | Costs for guardianship authorization |
| Lifetime Care—Advance Payments | A part of a life-care fee or “founder’s fee” you pay under an agreement with a retirement home, properly allocable to medical care | Portion of retirement home fees for medical care |
| Lodging | The cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to get medical care | Costs for staying at a hospital |
| Long-Term Care | Amounts paid for qualified long-term care services and certain amounts of premiums paid for qualified long-term care insurance contracts | Expenses for nursing home care |
| Medicines | Amounts you pay for prescribed medicines and drugs | Costs for prescription medications |
| Nursing Home | The cost of medical care in a nursing home, home for the aged, or similar institution | Expenses for nursing home care |
| Nursing Services | Wages and other amounts you pay for nursing services | Payments for home nursing care |
| Operations | Amounts you pay for legal operations that aren’t for cosmetic surgery | Expenses for surgery |
| Optometrist | Amounts you pay to an optometrist for medical care | Fees for eye exams and vision correction |
| Organ Donors | Medical care you receive because you are a donor or a possible donor | Expenses for organ donation |
| Osteopath | Amounts you pay to an osteopath for medical care | Payments for osteopathic treatment |
| Oxygen | Amounts you pay for oxygen and oxygen equipment to relieve breathing problems | Costs for oxygen tanks and equipment |
| Physical Examination | The amount you pay for an annual physical examination and diagnostic tests | Fee for a yearly physical |
| Pregnancy Test Kit | The amount you pay to purchase a pregnancy test kit | Purchase of home pregnancy tests |
| Psychiatric Care | Amounts you pay for psychiatric care | Costs for therapy and counseling |
| Psychoanalysis | Payments for psychoanalysis | Expenses for psychoanalytic sessions |
| Psychologist | Amounts you pay to a psychologist for medical care | Payments for psychological therapy |
| Special Education | Fees you pay for a child’s tutoring by a teacher specially trained for learning disabilities | Costs for specialized tutoring |
| Sterilization | The cost of a legal sterilization | Payment for a vasectomy or tubal ligation |
| Stop-Smoking Programs | Amounts you pay for a program to stop smoking | Fees for smoking cessation programs |
| Telephone Equipment | Cost of special telephone equipment for people with hearing or speech disabilities | Purchase of TTY or TDD equipment |
| Television Equipment | Cost of equipment that displays the audio part of television programs as subtitles for the hearing impaired | Expenses for captioning devices |
| Therapy | Amounts you pay for therapy received as medical treatment | Payments for physical therapy |
| Transplants | Amounts paid for medical care you receive because you are a donor or a possible donor | Costs associated with organ transplants |
| Transportation | Amounts paid for transportation primarily for, and essential to, medical care | Expenses for travel to medical appointments |
| Vasectomy | The amount you pay for a vasectomy | Cost of a vasectomy procedure |
| Vision Correction Surgery | Amounts you pay for vision correction surgery | Expenses for LASIK surgery |
| Weight-Loss Program | Amounts you pay to lose weight if it’s a treatment for a specific disease diagnosed by a physician | Fees for a medically necessary weight-loss program |
| Wheelchair | Amounts you pay for a wheelchair used for the relief of a sickness or disability | Purchase of a wheelchair |
| Wig | The cost of a wig purchased upon the advice of a physician for mental health after hair loss from disease | Expenses for a wig after chemotherapy |
| X-ray | Amounts you pay for X-rays for medical reasons | Fees for X-ray imaging |
13. Are There Any Expenses That Aren’t Includible?
Yes, there are several expenses that you can’t include in figuring your medical expense deduction. Here’s a breakdown:
| Expense | Reason for Exclusion |
|---|---|
| Baby Sitting, Childcare, and Nursing Services for a Normal, Healthy Baby | These expenses are considered personal and are not directly related to medical care. |
| Controlled Substances | Amounts paid for controlled substances that aren’t legal under federal law are not deductible, even if legalized by state law. |
| Cosmetic Surgery | Generally, cosmetic surgery aimed at improving appearance and not meaningfully promoting proper bodily function or treating illness isn’t deductible. |
| Dancing Lessons | These are considered for general health improvement and not specific medical treatment. |
| Diaper Service | Unless diapers are needed to relieve the effects of a particular disease, they are considered a personal expense. |
| Electrolysis or Hair Removal | Generally considered cosmetic and not deductible unless related to a medical condition. |
| Flexible Spending Arrangement (FSA) | Amounts reimbursed by your FSA are not deductible, as they are paid with pre-tax dollars. |
| Funeral Expenses | Funeral expenses are considered personal and are not deductible for income tax purposes. |
| Future Medical Care | Current payments for medical care to be provided substantially beyond the end of the year are generally not deductible. |
| Hair Transplant | Considered cosmetic surgery and not deductible unless to correct a deformity from a congenital abnormality, personal injury, or disfiguring disease. |
| Health Club Dues | Expenses to improve one’s general health or relieve physical or mental discomfort not related to a particular medical condition are not deductible. |
| Health Savings Accounts (HSA) | Amounts contributed to an HSA and expenses paid with tax-free distributions from an HSA are not deductible. |
| Household Help | Cost of household help is considered a personal expense, unless for nursing-type services directly related to medical care. |
| Illegal Operations and Treatments | Expenses for illegal operations, treatments, or controlled substances are not deductible. |
| Insurance Premiums | Certain insurance premiums, like those for life insurance or loss of earnings, cannot be included in medical expense deductions. |
| Maternity Clothes | Considered a personal expense and not deductible. |
| Medical Savings Account (MSA) | Amounts contributed to an Archer MSA and expenses paid with tax-free distributions are not deductible. |
| Medicines and Drugs From Other Countries | Costs of prescribed drugs brought in from another country are generally not deductible unless legally imported. |
| Nonprescription Drugs and Medicines | Except for insulin, costs for drugs that don’t require a prescription are not deductible. |
| Nutritional Supplements | Generally, nutritional supplements are taken to maintain ordinary good health and are not for medical care. |
| Personal Use Items | Items ordinarily used for personal, living, or family purposes are not deductible unless primarily used to prevent or alleviate a physical or mental disability or illness. |
| Premium Tax Credit | Health insurance premiums paid by or through the premium tax credit are not includible in medical expenses. |
| Surrogacy Expenses | Amounts paid for the identification, retention, compensation, and medical care of a gestational surrogate are not deductible. |
| Swimming Lessons | Considered for general health improvement and not specific medical treatment. |
| Teeth Whitening | Considered cosmetic and not deductible. |
| Veterinary Fees | Generally, veterinary fees are not includible, except for service animals. |
| Weight-Loss Program | Costs are not deductible if the purpose is to improve appearance, general health, or sense of well-being. |
14. How Do You Treat Reimbursements?
You can include in medical expenses only those amounts paid during the tax year for which you received no insurance or other reimbursement. You must reduce your total medical expenses for the year by all reimbursements you receive from insurance or other sources during the year.
15. What Happens if Your Insurance Reimbursement Is More Than Your Medical Expenses?
If you are reimbursed more than your medical expenses, you may have to include the excess in income. Figure 1, provided by the IRS, helps determine if any of your reimbursement is taxable. Generally, if you pay the entire premium for your medical insurance, you do not include the excess reimbursement in your gross income. However, if both you and your employer contribute to your medical insurance plan and your employer’s contributions aren’t included in your gross income, you must include in your gross income the part of your excess reimbursement that is from your employer’s contribution. If your employer or your former employer pays the total cost of your medical insurance plan and your employer’s contributions aren’t included in your income, you must report all of your excess reimbursement as other income.
16. What if You Receive Insurance Reimbursement in a Later Year?
If you are reimbursed in a later year for medical expenses you deducted in an earlier year, you must generally report the reimbursement as income up to the amount you previously deducted as medical expenses. Do not report as income the amount of reimbursement you received up to the amount of your medical deductions that didn’t reduce your tax for the earlier year.
17. What if You Are Reimbursed for Medical Expenses You Didn’t Deduct?
If you didn’t deduct a medical expense in the year you paid it because your medical expenses weren’t more than 7.5% of your AGI or because you didn’t itemize deductions, don’t include the reimbursement, up to the amount of the expense, in income.
18. How Do You Figure and Report the Deduction on Your Tax Return?
Once you have determined which medical expenses you can include, figure and report the deduction on your tax return using Schedule A (Form 1040).
19. How Does the Sale of Medical Equipment or Property Affect Your Taxes?
If you deduct the cost of medical equipment or property in one year and sell it in a later year, you may have a taxable gain if the selling price is more than the adjusted basis of the equipment or property.
20. How Are Damages for Personal Injuries Treated for Tax Purposes?
If you receive an amount in settlement of a personal injury suit, part of that award may be for medical expenses that you deducted in an earlier year. If it is, you must include that part in your income in the year you receive it to the extent it reduced your taxable income in the earlier year. If the settlement includes an amount for future medical expenses, you must reduce any future medical expenses for these injuries until the amount you received has been completely used.
21. What Are Impairment-Related Work Expenses and How Are They Handled?
If you are a person with disabilities, you can take a business deduction for expenses that are necessary for you to be able to work. These impairment-related work expenses are not subject to the 7.5% limit that applies to medical expenses.
22. How Are Health Insurance Costs for Self-Employed Persons Deducted?
If you were self-employed and had a net profit for the year, you may be able to deduct, as an adjustment to income, amounts paid for health insurance (which includes medical, dental, and vision insurance) on behalf of yourself, your spouse, your dependents, and your children who were under age 27 at the end of the year. The insurance plan must be established under your trade or business and the deduction can’t be more than your earned income from that trade or business.
Navigating tax deductions can be intricate, but understanding how medical expenses can reduce your taxable income is a powerful tool for financial planning. With income-partners.net, you’re equipped to explore strategic partnerships that not only boost your income but also provide insights into optimizing your tax benefits.
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FAQ Section
1. Can I deduct the cost of over-the-counter medications?
No, you generally cannot deduct the cost of over-the-counter medications unless they are prescribed by a doctor.
2. What if I had cosmetic surgery to correct a birth defect?
You can include in medical expenses the amount you pay for cosmetic surgery if it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.
3. Are weight loss program fees deductible?
Yes, you can include amounts you pay to lose weight if it is a treatment for a specific disease diagnosed by a physician, such as obesity, hypertension, or heart disease.
4. Can I deduct the cost of meals and lodging when traveling for medical treatment?
You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution, up to $50 for each night for each person.
5. What if I am self-employed? How do I deduct health insurance premiums?
If you are self-employed, you may be able to deduct amounts paid for health insurance on behalf of yourself, your spouse, and your dependents as an adjustment to income.
6. Can I include the cost of transportation to visit a mentally ill dependent?
Yes, transportation expenses for regular visits to see a mentally ill dependent are deductible if these visits are recommended as a part of treatment.
7. How do I handle reimbursements for medical expenses from an insurance company?
You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year.
8. What tax form do I use to report my medical expense deduction?
You report your medical expense deduction on Schedule A (Form 1040).
9. Can I deduct the cost of a wig if I lost my hair due to chemotherapy?
Yes, you can include in medical expenses the cost of a wig purchased upon the advice of a physician for the mental health of a patient who has lost all of their hair from disease.
10. Are there any limits on the amount of long-term care insurance premiums I can deduct?
Yes, the amount of qualified long-term care premiums you can include is limited, with the limits varying based on age.
