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How Does the Medical Expense Deduction Work?

Sept. 25, 2017
Income Taxes, Personal Taxes, Taxes
medical expense
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If you or your dependents have been in the hospital or had other costly medical or dental care, keep those receipts — they could help cut your tax bill. Here’s a look at how the deduction for medical expenses works and how you can make the most of it.

Deduction value

In general, you can deduct qualified medical expenses that are more than 7.5% of your adjusted gross income.

So, 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 in this example.

State thresholds

Your state might have a lower AGI threshold, which could save you money, says Chris Whalen, a certified public accountant in Red Bank, New Jersey. In that state, for example, the AGI threshold for deducting medical expenses is just 2%, which means taxpayers there might get a break on their state income taxes even if they can’t get one on their federal income taxes.

Whalen says it’s important to find out what your state’s rule is; you might leave money on the table otherwise. “I see it every year, all the time,” he says.

Which medical expenses are deductible?

IRS Publication 502 has the full list, but here it is in a nutshell.

  • Payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and nontraditional medical practitioners
  • Hospital and nursing home care
  • Acupuncture
  • Addiction programs, including for quitting smoking
  • Weight-loss programs for doctor-diagnosed diseases, including obesity (but diet food and health club dues don’t count)
  • Insulin and prescription drugs
  • Admission and transportation to medical conferences about diseases that you, your spouse or your dependents have (but meals and lodging don’t count)
  • Dentures, reading or prescription eyeglasses, contacts, hearing aids, crutches, wheelchairs and service animals
  • Transportation costs to and from medical care
  • Insurance premiums for medical care or long-term care insurance if they’re not paid by your employer and you pay out of pocket after taxes

Other rules

  • You can only include the medical expenses you paid during the year
  • You can’t include expenses you were reimbursed for (so if insurance paid the bill, it’s not deductible)

What’s not deductible?

  • Funeral or burial expenses
  • Over-the-counter medicines
  • Toothpaste, toiletries and cosmetics
  • Vacations
  • Most cosmetic surgery
  • Nicotine gum and patches that don’t require a prescription

How to claim the medical expenses deduction

You’ll need to take the following steps.

Itemize deductions

First, you’ll need to itemize instead of taking the standard deduction. That can mean spending more time on tax prep, but if your standard deduction is less than your itemized deductions, you should itemize and save money anyway. If your standard deduction is more than your itemized deductions, take the standard and save some time. (Read more about itemizing versus taking the standard deduction.)

Use Schedule A

The Schedule A form allows you to do the math to calculate your deduction. Your tax software can walk you through the steps.

Consider YOUR filing status

Filing separately if you’re married could get you a bigger medical-expenses deduction, but this move is risky because you might lose other tax breaks. Let’s say your spouse racked up $6,000 in medical bills last year. If you file jointly and your combined AGI is $100,000, then only the portion of your medical bills over 7.5% of that — or the portion over $7,500 — is deductible. So in this scenario, you can’t deduct any of your $6,000 in medical bills.

Now, let’s say you file separately. Your AGI is $75,000 and your spouse’s AGI is $25,000. Because the medical bills are your spouse’s, he or she could deduct anything over 7.5% of that $25,000 AGI, or $1,875. That would mean a $4,125 tax deduction for filing separately.

Keep good records

Hang onto those bills, and ask for records from your pharmacy or other care providers to fill in the holes, says Peter Gurian, a Dallas-area CPA.

“If you’re taking this deduction, you’re probably pretty sick or you’ve got some problems that need to be dealt with. If that’s the case, then the key is to really do a good job of keeping track of every single expense and expenditure,” he says.

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