Medical bills can be tough to deal with, but they might help save you money at tax time. Some medical expenses are tax-deductible, but there are conditions to meet. You can only deduct medical costs if you choose to itemize deductions on your tax return.
Additionally, your medical expenses must exceed 7.5% of your adjusted gross income (AGI). Understanding which costs qualify can help you lower your taxes and ease the burden of medical expenses.
How Do Medical Deductions Work?
The IRS allows taxpayers to deduct certain medical expenses that go over 7.5% of their AGI. For example, if your AGI is $50,000, you’ll only be able to deduct medical costs that exceed $3,750 (7.5% of $50,000).
To claim this deduction, you’ll need to itemize your deductions on Form 1040 when you file your taxes. Keep in mind that if your total itemized deductions are less than the standard deduction, you won’t benefit from itemizing.
What Medical Expenses Can You Deduct?
The IRS has a list of medical costs that you’re allowed to deduct. Here are some common examples:
- Fees for doctors, dentists, surgeons, chiropractors, and mental health providers
- Prescription medications and insulin
- Medical supplies and equipment (like crutches, glasses, hearing aids, and breast pumps)
- Hospital stays, lab tests, and certain long-term care costs
- Costs for service animals
- Travel and lodging connected to medical care
You can find a full list of deductible expenses in IRS Publication 502.
What Medical Expenses Are NOT Deductible?
Not every expense qualifies for the deduction. Here are some examples of costs you can’t claim:
- Cosmetic surgery, unless it’s medically necessary because of an illness or injury
- Over-the-counter medications (like painkillers) unless it’s insulin
- Teeth whitening
- Diet-related foods or products
- Travel expenses for leisure or vacations
- Funeral costs
- Expenses reimbursed by insurance
How to Calculate Your Medical Expense Deduction
If you're planning to deduct medical expenses, you’ll need to calculate how much you can claim. Follow these steps:
- Find your adjusted gross income (AGI) on line 11 of Form 1040.
- Multiply your AGI by 7.5% (or 0.075). This is the threshold.
- Add up all your qualifying medical costs.
- Subtract the 7.5% threshold from your total medical costs. The leftover amount is your deduction.
Example: Let’s say your AGI is $50,000. Multiply that by 7.5% to get $3,750. If your medical expenses are $6,500, subtract $3,750 from that amount. You’ll be able to deduct $2,750 on your tax return.
Other Ways to Save on Medical Costs
If your medical expenses don’t exceed the 7.5% threshold, or if you don’t itemize deductions, there are other ways to save on medical expenses through tax-advantaged accounts:
- Health Savings Account (HSA):
- A savings account that lets you set aside pre-tax money for qualified medical expenses.
- You’ll need a high-deductible health plan to qualify.
- The unused funds carry over year-to-year.
- Flexible Spending Account (FSA):
- This account allows you to use pre-tax dollars for medical expenses.
- Funds usually expire at the end of the year, but some exceptions apply.
- Health Reimbursement Arrangement (HRA):
- Provided by employers, HRAs reimburse qualifying medical expenses tax-free.
- Some plans allow unused funds to roll over.
Is It Worth Claiming Medical Expenses on Taxes?
Whether it’s worth claiming depends on your situation. You must itemize your deductions to claim medical expenses, and your costs must exceed 7.5% of your AGI.
If this doesn’t apply to you, using accounts like HSAs or FSAs can be a better way to save money on medical costs.
Final Takeaway
Managing medical expenses can be stressful, but understanding your tax options can help ease the financial strain.
If you’re unsure about your tax situation, consider working with a financial advisor who can guide you through the process and help you reach your financial goals.
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