Medical expenses can have a devastating impact on your budget, especially if you have unforeseen emergencies that are not fully covered by your insurance. The IRS allows taxpayers some relief by making some of these expenses partially tax-deductible. If you or your dependents were in the hospital or had other costly medical or dental expenses, keep those receipts – they could help cut your tax bill. Read below to learn how the medical expense deduction works and how to maximize your savings.
Deduction Value for Medical Expenses
Qualifying medical and dental bills for you, your spouse, and your dependents count toward the deduction limit.
In 2019, the IRS allows all taxpayers to deduct the total qualified unreimbursed medical care expenses for the year that exceeds 7.5% of their adjusted gross income (AGI). Beginning in 2020, the threshold amount increases to 10% of AGI.
Your adjusted gross income (AGI) is your taxable income minus any adjustments to income such as contributions to a traditional IRA and student loan interest.
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.
Which Medical Expenses are Deductible
IRS Publication 502 has a full list of deductible expenses. The following is a shortened list of deductible medical expenses:
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- Payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and other 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 usually 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
How to Claim the Medical Expense Deduction
Itemized deductions
To claim the medical expenses deduction, you must itemize your deductions rather than taking the standard deduction. This means that you likely need to spend more time on tax preparation; however, 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 deduction and save some time.
Keep Good Records
Be sure to hold onto your medical bills and receipts. Many taxpayers do not realize how comprehensive the medical expense deduction is, so they tend not to keep track of their medical expenses. This is a huge mistake. Even if you usually do not have enough medical expenses to qualify for the deduction, you never know when a surprise medical expense might allow you to deduct all of them for that year.
Be proactive in reducing your tax bill by calling Onyx Tax, today.
Maggie Miller is a third-year student at the Charleston School of Law, where she concentrates her studies on tax policy and public finance. On behalf of Onyx Tax, LLC., Maggie writes weekly blogs to provide insight on various tax-related issues and policies.