If your insurance doesn’t fully cover your medical bills, you may be able to use them to reduce your tax bill. Only some medical costs are tax-deductible, so it’s important to understand which costs you can claim on your taxes. The Internal Revenue Service (IRS) has specific rules about qualified medical expenses and how to properly deduct them.
What Medical Costs Am I Responsible for?
Individuals are responsible for covering different amounts of medical costs depending on their insurance plan. Your plan will cover a certain percentage of your medical costs, but you will be responsible for the remaining percentage of costs.
Policyholders are responsible for certain costs based on the following health insurance plans:
- Catastrophic: These plans cover less than 60% of health care costs, leaving policyholders responsible for a large percentage of their costs. However, catastrophic plans are only available for individuals experiencing financial hardship or people younger than 30.
- Bronze: The bronze plan pays 60% of health care costs, so policyholders are responsible for paying the remaining 40% of their medical costs.
- Silver: The silver plan covers 70% of health care costs, so policyholders are responsible for the remaining 30% of costs.
- Gold: The gold plan pays 80% of health care costs, so policyholders are responsible for covering the remaining 20% of costs.
- Platinum: The platinum plan covers 90% of health care costs, so policyholders pay the remaining 10% of costs.
Depending on your coverage level, you may be responsible for paying large sums toward your medical expenses. You can claim qualified, out-of-pocket medical expenses as deductions on your taxes and use them to reduce the amount of taxes you pay for the year.
When you enroll in California health insurance through the Covered California Health Exchange, you may qualify for up-front tax credits based on your income.
What Health Care Costs Are Tax-Deductible?
Taxpayersthe following unreimbursed qualified medical expenses
- Surgeries
- Doctor visits and treatments
- Diagnostic tests
- Hospital services
- Ambulance services
- Nursing services
- Laboratory fees
- Fertility treatments
- Preventative care
- Vision and dental care
- Weight-loss programs
- Psychologist and psychiatrist visits
- COVID-19 treatment costs
- COVID-19 home testing
- Prescription medications
- Insulin
- Blood sugar test kits
- Addiction treatment
- Glasses and contacts
- Hearing aids
- False teeth
- Traveling expenses for medical care
Medical treatments such as surgeries and preventative care are tax-deductible. Prescription medications and necessary items such as glasses and hearing aids are also tax-deductible, and you can even deduct travel expenses such as parking fees, bus fare and gas mileage on your car. You can also include meals if you purchase them at a medical facility while receiving care. Weight-loss programs are only deductible if a doctor prescribes them after diagnosing a specific illness.
Are Health Insurance Premiums Tax-Deductible?
You can include health insurance premiums in your medical expense calculations. However, certain premiums are not eligible for medical expense deductions. You cannot include the following premiums in your tax deductions:
- Life insurance policies
- Insurance policies that cover loss of function, sight or life
- Loss-of-earning insurance policies
- Car insurance policies covering medical care for people injured by or in your car
- Insurance policies that provide a guaranteed weekly amount during hospitalization, injury or illness
- Premiums you pay with tax-free distributions
You may be able to deduct 100% of your health insurance premiums for yourself, your dependents or your spouse as a non-itemized deduction if you are self-employed. Report this amount on line 16 of the IRS Schedule 1 form.
Medical Expense Deduction Value
Medical expense deduction valueseligible unreimbursed medical expenses
To calculate your deductible medical expense amount, multiply your AGI by 7.5% and subtract the result from your total medical expenses. For example, if your AGI is $50,000, and your yearly medical expenses add up to $5,500, multiply $50,000 by 0.075. The result is $3,750, which means you can only include expenses that exceed $3,750 as an itemized deduction. If you subtract $3,750 from $5,500, your result is $1,750, which is the number of medical expenses you can deduct.
In 2017, the Tax Cuts and Jobs Act (TCJA) doubled the standard deduction from 2016. The single taxpayer standard deduction is $12,550, and the standard deduction for married taxpayers filing jointly is $25,100. You will only itemize your deductions if they are higher than the standard deduction. In most cases, you should only claim the medical expenses deduction if your itemized deductions are higher than the standard deduction.
What Medical Expenses Are Not Tax-Deductible?
The IRS does not allow taxpayers to deduct any medical expenses they are reimbursed for. If your employer or insurer reimburses you for medical expenses, you may not deduct them from your taxes. Additionally, you cannot deduct any medical expenses you pay through a health savings account (HSA) or flexible spending account (FSA) because these accounts are already tax-advantaged.
Non-tax-deductible medical expenses include the following:
- Cosmetic procedures
- Nonprescription drugs
- General health purchases such as toothpaste and vitamins
- Teeth whitening
- Illegal treatments and operations
- Hair removal or electrolysis
- Health club memberships
- Diet food
- Nonprescription nicotine products
- Medical expenses you paid in a separate year
- HSA contributions
How Do I Claim Medical Expenses on My Taxes?
Claiming medical expenses on taxes requires you to itemize your deductions on the IRS Schedule A form, and they must be greater than the standard deduction in most cases. You can use the following steps to itemize your deductions on the IRS Schedule A form:
- Report your total medical expenses for the year on line 1.
- Report your AGI from your IRS 1040 form on line 2.
- Record 7.5% of your AGI on line 3.
- On line 4, record the difference between your medical expenses and 7.5% of your AGI.
- Take your resulting amount on line 4, add it to any other itemized deductions and then subtract it from your AGI to reduce your taxable income.
- Check to make sure your result is equal to or greater than the standard deduction. If it is less, you should not itemize or deduct your medical expenses.
Find a Health Insurance Plan That Is Right for You
While some medical expenses can save you money during tax season, it is important to have health coverage so you do not have to pay significant health care costs out-of-pocket. Find a health insurance plan with Health for California for a straightforward, exceptional experience.
Sign up for a health plan using our fast, simple and accurate online application, and enjoy the convenience of helpful agents who are always available to answer your questions. Contact Health for California to learn more about how we can help you choose the health insurance plan that is right for you.
