- What are tax deductions?
- What medical expenses are tax deductible?
- What medical expenses are not tax deductible?
- How do I deduct medical expenses on my tax return?
- Are there any tax credits to help with medical expenses?
- Key takeaways on medical expense deductions
What are tax deductions?Before diving into which medical expenses are tax deductible, you first need to know what tax deductions are in the first place. The Internal Revenue Service (IRS) offers relief to taxpayers in three ways: tax credits and tax deductions, as well as exemptions. A tax credit reduces the amount of taxes you owe for the year, dollar for dollar. This tax incentive is subtracted from your total tax liability, not your annual taxable income. For example, if you qualify for the Child Tax Credit, the $2,000 tax credit (if you have one qualifying child), will be taken out of your taxes. So, if you owe $5,000 in taxes and receive the $2,000 Child Tax Credit, you will only have to pay $3,000 in taxes. On the other hand, tax deductions lower your annual taxable income. What does this mean? Let’s say, for example, you qualify for a $1,000 tax deduction and fall under the 24 percent tax bracket. When you file taxes, you will notice a $240 deduction. However, when President Trump enacted the Tax Cuts and Jobs Act, he raised something called the standard deduction. When it comes to receiving deductions, you can either itemize your deductions, which means to list each eligible expense out one-by-one (such as in the previous example) or choose the standard deduction. The 2017 Tax Cuts and Jobs Act raised the standard deduction for taxpayers who are married filing jointly to $24,400, to $12,200 for individual taxpayers and married couples filing separately, and to $18,350 for those who file as head of household. The standard deduction rate, under Trump’s new law, is almost double what it used to be, which makes opting for the standard deduction more appealing. However, sometimes, you may have insurmountable medical bills that exceed the standard deduction amount for your filing status. If this is the case, then you may want to itemize your deductions to keep more money in your pocket that can be used to help pay off your health care expenses.
What medical expenses are tax deductible?If you or a family member faced a sudden emergency or are dealing with an expensive medical issue that surmounts the standard deduction, it’s best to itemize your medical expenses. If you want to receive the medical tax deduction, you must itemize all of your medical bills. Itemizing deductions can become tedious and sometimes confusing, which is why help from a tax preparation service may come in handy. Additionally, the IRS only allows you to deduct medical expenses that exceed 7.5 percent of your adjusted gross income (AGI). Luckily, the Tax Cuts and Jobs Act reduced the adjusted gross income percentage from 10 percent to 7.5 percent. To itemize and deduct your medical expenses, you must fill out Schedule A on IRS Form 1040. However, if your medical bills do not exceed 7.5 percent of your AGI, it may not be worth itemizing your medical expenses, and it will be better to take the standard deduction. If you do find that your medical expenses exceed 7.5 percent of your AGI, then it’s time to begin collecting your receipts and calculating how much money you’ve spent on health care throughout the year. Eligible medical expenses for the medical tax deduction include, but are not limited to:
- Transportation costs related to medical care, such as a taxi, ambulance, train, or gas costs
- Cost of a medical conference admission you’ve attended for a chronic illness you, your spouse, or dependent suffers from
- Doctor, dentist, psychologist, chiropractor, and surgeon fees
- Prescription drugs such as insulin
- Residential nursing care or inpatient hospital care payments
- Insurance premium payments
- Payments for guide dogs or service animals for a hearing disable or visually impaired individual, or for individuals with other physical disabilities
- The cost of reading glasses or contact lenses, crutches, wheelchairs, hearing aids, prescription eyeglasses, and false teeth
- Payments for a weight-loss program for certain diseases diagnosed by a doctor, including obesity
- Fees for smoking-cessation programs and inpatient treatment drug and alcohol treatment centers
What medical expenses are not tax deductible?Now that you know which medical expenses are deductible, it’s best to know which medical expenses are not deductible. As you itemize your deductions this year, you have to ensure all expenditures came from the tax year you’re filing for. So, if you are battling a long-term disease that you’ve been getting yearly treatment for, you will only be allowed to write off the expenses you paid for during this tax year. Medical expenses you should be aware of that the IRS does not allow you to deduct include:
- Most cosmetic surgeries
- Payments for nicotine gum and patches that are not prescribed by a doctor
- Funeral expenses
- Burial expenses
- Nonprescription medicines
- Cosmetics, toothpaste, and toiletries
- Programs or trips used for the general improvement of your health
- Medical expenses covered by your insurance plan or employer
Are there any tax credits to help with medical expenses?Itemizing your medical expenses isn’t the only way you can save money this tax season. As previously mentioned at the beginning of this article, the IRS has another tax incentive called tax credits. The Premium Tax Credit is a refundable credit that helps American taxpayers and families pay for their health insurance premiums. To be eligible for the Premium Tax Credit, you must meet certain requirements. Here’s how to meet these requirements:
- Your household income must fall within a specified range. This range must be between 100 and 400 percent of the federal poverty line for the size of your family. So, those with lower incomes will often receive more generous credit amounts.
- You cannot be claimed as a dependent on the tax return of another individual.
- You cannot file married filing separately, unless you are a victim of spousal abuse or abandonment.
- For at least one month during the year, you or someone in your family must have enrolled in health insurance coverage in which you or your family member was ineligible for an employer-sponsored plan or ineligible for government health coverage like Medicaid, TRICARE, or Medicare, and
- During one of those same months you or a family member was enrolled in health insurance coverage while ineligible for an employer-sponsored or government health coverage plan, you paid those health insurance premiums by the original due date of your return. Payments can be made by you, an advance credit payment, or by someone else.