The medical expense deduction provided for in the Internal Revenue Code is one of the trickier tax breaks available. It’s subject to multiple rules, and it might not even be to your advantage to claim it. You might want to prepare your tax return both ways – once claiming the deduction and then again without claiming it – to determine whether you’re better off itemizing to claim your medical expenses or taking the standard deduction for your filing status instead.
The Percentage-of-AGI Rule
One of the downsides to claiming this tax break is that you can’t deduct 100 percent of the medical expenses you pay over the course of the tax year. You can only claim the portion that exceeds 7.5 percent of your adjusted gross income as of tax year 2021, the return you'll file in 2022. Your AGI is your taxable income arrived at after claiming certain “adjustments to income” that reduce your gross income, such as contributions you made to retirement plans or student loan interest you might have paid. You can find it on line 11 of your Form 1040 tax return.
The rule works out like this: Let's say that your adjusted gross income was $50,000 in 2020, and you paid $5,000 in uninsured medical costs and insurance premiums in the same year. Unfortunately, 7.5 percent of $50,000 works out to $3,750. You’re therefore limited to a deduction of $1,250 because you can only claim the portion of your expenses that exceed 7.5 percent of your AGI, or $3,750.
This percentage-of-AGI threshold was scheduled to hike up to 10 percent in 2021, the limit that applied prior to 2017, but that didn't happen. At least a few members of Congress have taken the position that this is prohibitive for some taxpayers. The Medical Expense Savings Act was introduced in the Senate in January 2019, seeking to freeze the percentage threshold at 7.5 percent, but the bill has unfortunately languished since its introduction.
What Expenses Are Deductible?
Like almost all deductions, you must have actually paid the expenses during the tax year in which you’re claiming them. You might have an MRI on December 30, but you can’t claim the expense until the next tax year if you wait until January to cover the tab. That said, the IRS casts a pretty wide net for what counts as a deductible medical expense, making it potentially easier to meet that 7.5 percent threshold.
According to the IRS, you can deduct “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” Treatment can be provided by physicians, dentists, surgeons and “other” medical practitioners, and your whole family is covered, including your spouse and your dependents, as long as you personally pay the expense.
Some Qualifying Expenses
The IRS publishes a comprehensive list of qualifying medical expenses in Publication 502. Some expenses that you might not expect to be covered – but are – include:
- Therapeutic abortion
- Birth control pills
- Fertility treatments
- Pregnancy test kits
- Sterilization
- Treatment for substance abuse, including alcoholism
- Stop-smoking programs, not including nonprescription helpers like nicotine gum
- Weight-loss programs prescribed by a physician
- Cosmetic surgery that’s medically required
- Treatment by a Christian Science practitioner
- Prescription drugs
- Vision exams, surgery, contact lenses and eyeglasses
- Certain food items that are prescribed by a doctor and that don’t simply satisfy “normal nutritional needs”
- Service dogs and other animals
- Regular checkups and exams
- Psychoanalysis, psychiatric and psychological care
- Long-term care
- Nursing homes and in-home care services
You can even deduct mileage for driving to a doctor’s appointment, to emergency care, or to check-in at a hospital. It’s not a huge amount, just 16 cents a mile as of 2021, but every penny helps and it increases to 18 cents a mile in 2022. Alternatively, you can calculate the percentage of your actual auto expenses that were the result of driving for medical care, or bus, train or taxi fares. You can also claim a deduction for food and lodging if seeking care requires that you must be away from home for a period of time, although lodging is limited to $50 per night per person.
Any equipment or supplies you must purchase to aid in health care are deductible, too, and you can claim the cost of improvements made to your home to accommodate a medical condition. There’s a catch here, though – you have to subtract any increase to the value of your home that’s due to the improvement.
Health insurance premiums you pay count toward your total medical expenses, provided that you pay them with after-tax income. Benefits provided by your employer don’t count.
Read More: Health Insurance Basics
What’s Not Deductible?
It might sound like just about anything you spend on your body or mind will qualify, but that’s unfortunately not the case. Some medical expenses are off limits for the deduction, including anything that’s simply “beneficial” to your health and not medically ordered or prescribed to cure or aid in a condition. An example might be your gym membership. Sure, it keeps you fit, and that’s healthy, but it’s an elective option if your physician didn’t order it to help with a diagnosed condition.
The same premise applies to expenses such as:
- Elective cosmetic surgery not required to repair or correct a condition
- Travel costs to and from work, even if you must use an unconventional means of transportation due to a medical condition
- Diet foods or beverages that aren’t medically ordered
- Prescriptions for medical marijuana
- Electrolysis, hair removal or hair transplants
- Household help if the worker isn’t a health care professional
- Maternity clothes
- Medicines and drugs from other countries
- Over-the-counter or nonprescription drugs other than insulin
You can’t claim a deduction for any medical expenses that are paid for by your insurance company, even though your insurance premiums themselves are deductible. For example, you’re limited to a $15 deduction for your co-pay toward a $100 treatment if your insurer paid $85 of that bill, regardless of whether the insurer paid the practitioner or reimbursed you for $85 of the cost.
Certain insurance policies don’t qualify, including those that will reimburse you for a loss of earnings in the event of illness or injury, the portion of your auto insurance that covers accidental injury, life insurance, policies for which you pay the premiums with tax-free distributions from retirement or health savings accounts, and premiums paid for through the Premium Tax Credit.
What About Medicare?
The deductibility of Medicare benefits is another complicated facet of this tax break. It depends on your plan and whether you contributed to your benefits through tax withholding over the years. Medicare A typically isn’t deductible for this reason. You can deduct contributions if you enroll in Medicare A voluntarily, however, because you weren’t required to pay into Social Security/Medicare taxes for some reason.
Medicare B is supplemental coverage, so it’s deductible. The same applies to Medicare D because this is a voluntary prescription program.
Read More: Medicare Questions & Answers
Rules for Spouses and Dependents
You can only claim expenses that you personally paid for if you’re married and if you and your spouse file separate tax returns – unless you live in one of the nine community property states as of 2021: Washington, Idaho, Nevada, California, Wisconsin, New Mexico, Arizona, Louisiana and Texas. You might have to back up your claim for any costs you paid from a joint checking account to prove that it really was your income that covered them.
Now here’s a bit of good news: You don’t actually have to claim your child as a dependent in order to claim any expenses you personally paid for their medical care if you and their other parent are separated, divorced or were never married. Your ex can claim your child as a dependent, and you can generally still include any medical expenses you paid on your child’s behalf, although a few additional rules apply.
The same goes for adults you support but who you might not have been able to claim as dependents simply because they earned too much to qualify as a dependent, they filed a joint return with a spouse, or they were claimed as a dependent on someone else’s tax return. You can deduct their medical care costs as well if you pay them and they otherwise qualify as your dependent.
Read More: Claiming Dependents for Your Taxes
How to Claim the Deduction
Claiming a deduction for medical expenses can almost be easier than trying to figure out which of your expenses qualify, but this is where you have to decide if claiming them is even worth it in the first place. In addition to only being able to claim the portion of your expenses that exceed 7.5 percent of your AGI, this is an itemized deduction. You must forgo claiming the standard deduction for your filing status for the tax year when you itemize. You can’t do both.
Itemizing requires completing and filing Schedule A with your tax return, and listing all your deductible expenses – not just medical expenses – for the tax year. You would then transfer the total of your Schedule A expenses to your Form 1040 tax return in lieu of claiming the standard deduction.
Itemizing vs. the Standard Deduction
Many taxpayers find that the total of their itemized deductions on Schedule A doesn’t exceed the amount of the standard deduction they’re entitled to claim for their filing status instead. The Tax Cuts and Jobs Act effectively doubled standard deductions when it went into effect in 2018, so this can be a difficult hurdle, at least until 2025 when the TCJA potentially sunsets or expires.
Schedule A includes myriad other tax-deductible expenses, from mortgage interest to property taxes, but the standard deduction for a single filer as of the 2021 tax year is $12,550. That’s a lot of itemized deductions, particularly considering that a few of them are capped in some fashion as the medical expense deduction is.
The standard deduction increases to $18,880 if you qualify for the head of household filing status, and it goes up to $15,100 if you’re married and file a joint tax return. Taxpayers who are over age 65 and/or blind are entitled to slightly larger standard deductions.
The bottom line: You’d be paying income tax on $550 more of your earnings than you have to if your total itemized deductions are $12,000 and you’re single. Your standard deduction of $12,550 would be $550 more than your itemized deductions.
Many tax professionals recommend preparing your tax return both ways to see exactly where you stand and to avoid giving the IRS any more of your money than is necessary. Collect and save every receipt, every bill, and all your bank records if you think you even might want to deduct your medical expenses when you prepare your return. You’ll want a record of every penny spent if you’re going to take advantage of this tax deduction.
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