If costly medical or dental bills have you feeling sick, there’s a potential tax-time antidote: the medical expense deduction. This can help many taxpayers cut their tax bills — if they know how it works. Two tax pros explain how to diagnose your medical bills and make your tax situation a little healthier.
Some things count, and some things don’t
Claiming the medical expense deduction starts with digging up bills associated with preventing, diagnosing, treating or curing a medical issue for you or your dependents. “That is going to cover medicines; it's going to cover doctors, physical therapists, psychologists, eye doctors, dentists, medical exams, any lab work that they have to have,” says Patricia Thompson, a certified public accountant and partner at Piccerelli, Gilstein & Company in Providence, Rhode Island. Home health care, nursing help, hospital care and long-care insurance premiums might also qualify, she notes.
However, the bills have to be unreimbursed — in other words, you can’t deduct medical expenses that your insurance or Medicare paid. Plus, not every medical bill counts. One notable example is medical marijuana, which is legal in many states but isn’t a deductible medical expense in the eyes of the IRS. Over-the-counter drugs (other than insulin) are also usually a no-go, and in general so are things such as funeral expenses, gym memberships, weight-loss programs (unless weight loss is a treatment for a specific disease diagnosed by a physician) and most cosmetic surgery. IRS Publication 502 has the full list.
What you can deduct depends on your income
In general, you can deduct qualifying medical expenses that were more than 7.5% of your adjusted gross income in 2019. For example, if your adjusted gross income is $40,000, anything beyond the first $3,000 of your medical bills — or 7.5% of your AGI — could be deductible. If you rang up $10,000 in medical bills, $7,000 of it could be deductible.
On state-level tax returns, the AGI threshold might be lower, though, and that means you might get to deduct medical expenses on your state tax return even if you don’t qualify for one at the federal level, according to Gary DuBoff, a certified public accountant and certified financial planner at MBAF in New York. “Every state has a different rule with regard to the deductions. They don't necessarily follow the federal law,” he says.
You have to itemize
If you plan to take the standard deduction this year, you may be out of luck. “You can't get a medical expense deduction if you're not an itemizer," DuBoff says.
Itemizing your deductions can have its own difficulties, though. You’ll have extra paperwork to complete, and you’ll need to have documentation to support your deduction in case you’re audited. Plus, your medical expense deduction and other itemized deductions will need to exceed the standard deduction in order to be worth it financially. “Unless they exceed the standard deduction … you're not going to benefit from them,” DuBoff says.