Medical care is expensive in the United States, even with insurance coverage. If you have to pay a lot of money for healthcare services, you may be wondering if medical expenses are tax deductible. Unfortunately, the answer is, it depends.
In some cases, you can claim a deduction for your medical expenses, but in others, you aren’t able to. Here’s what you need to know to figure out when you can save on your taxes after paying for care.
When are medical expenses tax deductible?
Medical expenses are tax deductible only if:
- You itemize. You can’t claim a deduction for healthcare services if you claim the standard deduction.
- Your medical expenses exceed a certain percentage of your adjusted gross income. The medical expenses must be above 7.5% of your income in the 2020 tax year or above 10% in the 2021 tax year.
- You meet the IRS definition of medical expenses, which are “payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.”
To understand how this works, say that your adjusted gross income is $50,000 and you pay $5,000 in medical expenses. In this example, 7.5% of your AGI equals $3,750. In 2020, you’d be able to claim a deduction for the portion of medical expenses exceeding this amount — $1,250. But in 2020, when your expenses must exceed 10% of your income, you wouldn’t get a deduction at all — unless Congress changes the rules and allows you to deduct expenses at the lower threshold again.
What medical expenses are deductible?
The IRS has a list of expenses that are deductible if you itemize and if your spending exceeds the requisite percentage of your income. They include payments made to medical professionals including doctors, chiropractors, surgeons, physiatrists, and practitioners of non-traditional medicine. They also include costs incurred for:
- Inpatient hospital care
- Residential nursing care, if you’re in the nursing home primarily to receive medical care
- Inpatient treatment costs for alcohol or drug addiction
- Acupuncture treatment
- Smoking-cessation programs or prescription drugs for nicotine withdrawal
- Weight-loss programs for diagnosed diseases or conditions including obesity
- Insulin
- Prescription drugs
- Transportation to medical conferences related to a chronic illness affecting you or a family member
- False teeth
- Prescription eyeglasses or contact lenses
- Hearing aids
- Crutches or wheelchairs
- Service animals or guide dogs
- Transportation to receive essential medical care
If you’re reimbursed for medical expenses you incurred, you can’t take a deduction for them. And you aren’t allowed to take a deduction for funeral or burial expenses, cosmetic surgery, toiletries, or non-prescription medications.
It can be confusing to figure out exactly what expenses entitle you to a deduction, but the IRS has a tool you can use for help.
Are there other ways to pay for medical care with pre-tax dollars?
If you’re not able to take a deduction for your medical spending because you don’t itemize on your taxes or your total costs don’t exceed the requisite percentage of your income, you have other options.
If your employer offers a flexible spending account (FSA), you can contribute to it with pre-tax dollars. However, you must use your FSA contributions in the year you make them or you risk losing them (although some plans allow you to carry over $500 in unused funds).
If you have a qualifying high-deductible health insurance plan, you can also make deductible contributions to a health savings account (HSA). These provide more flexibility than FSAs, including the option to invest your money, grow it tax free, and carry it over from year to year.
With medical care such a financial burden for millions, it’s important to explore all your options to take advantage of favorable tax rules to defray some of the expenses of receiving treatment.