In order to deduct medical costs from your taxes this year, the expenses must meet the qualifications outlined by the Internal Revenue Service (IRS). Learn everything you need to know about how to calculate medical deductions, which medical expenses are permitted, and what qualifications you’ll need to meet in order to take advantage.
What Is the Medical Expense Deduction?
The medical expense deduction allows you to deduct qualified unreimbursed medical and dental expenses on your annual tax return for yourself, your spouse, or your dependents. The IRS allows filers to deduct medical expenses that are more than 7.5% of their adjusted gross income (AGI) for the 2021 tax year.
For example, if your AGI for 2021 is $60,000 then any qualified expenses exceeding $4,500 are deductible. That means if you had $10,000 in medical bills, $5,500 of them could be deductible.
Who Can Claim the Medical Expense Deduction?
Only taxpayers who itemize their deductions using Schedule A (Form 1040) can claim the medical expense deduction. An itemized deduction is a certain expense or loss of money that the federal government allows you to deduct from your annual income. Common itemized deductions are for medical and dental expenses, mortgage interest, charitable contributions, and property taxes.
Schedule A allows taxpayers to itemize deductions instead of claiming the standard deduction. You should generally only itemize if itemizing deductions would be worth more than your standard deduction, which starts at $12,550 for single filers and $25,100 for joint filers for the 2021 tax year. For filers who don’t have enough to itemize for their 2021 taxes, taking the standard deduction might be more beneficial.
What Medical Expenses Are Tax Deductible?
Only certain medical and dental expenses are eligible for the medical expense deduction. Deductible medical expenses generally include costs and payments for medically necessary care and services, such as preventative care, treatment, surgeries, and dental and vision care.
Common expenses that are deductible are prescription medications, eyeglasses, contacts, hearing aids, insulin, etc. You can also deduct unreimbursed expenses for visits to psychologists and psychiatrists. You might also be able to deduct premiums for health insurance, as long as you paid them with pretax money.
IRS Permitted Medical Deductions
For a full list of IRS permitted medical deductions, consult IRS Publication 502. For quick reference, here are some of the most common medical expenses that can be deducted.
- Payments to doctors, dentists, surgeons, dentists, psychiatrists, and other medical practitioners for qualified expenses
- X-rays and laboratory services
- Prescription medicines or insulin
- Hospital and nursing home care
- Diagnostic tests
- Addiction and weight loss programs
- Transportation costs to and from medical care
- Dentures, reading or prescription eyeglasses, contacts, hearing aids, crutches, wheelchairs, and service animals
- 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
Which Expenses Can’t be Deducted?
Here are some examples of ineligible medical expenses.
- Funeral or burial expenses
- Over-the-counter medicines
- Insurance premiums or other expenses paid by an employer-sponsored health insurance plan
- Toothpaste, toiletries, and cosmetics
- Cosmetic surgery (unless it’s necessary to improve a deformity, a personal injury resulting from an accident, or a disfiguring disease)
- Nicotine gum and patches that don’t require a prescription
Self-Employed Health Insurance Deduction
Keep in mind that if you are self-employed, the rules are slightly different when it comes to deducting qualified medical expenses and health insurance. A self-employed health insurance deduction is allowed for those who qualify, but it’s adjusted for income and not an itemized deduction. For more information, refer to the IRS to see if you are eligible for the self-employed health insurance deduction.
Here are some factors you should know:
- Self-employed individuals are allowed to deduct all their premium payments from their adjusted gross income, regardless of whether they itemize their deductions (there are some exceptions, so refer to the IRS for more information).
- There are some income limitations. In any given year, a self-employed person cannot deduct more than the income they generate through their business operations. Individuals who operate more than one business can designate only one of them as the health insurance plan sponsor.
- The deduction for self-employed individuals is considered a write-off of their income taxes; it’s not deducted when they are filing on behalf of any of their business operations.
Are health insurance premiums tax deductible?
It depends. Insurance premiums for medical care or long-term care that you pay on your own using after-tax dollars are tax deductible, but insurance premiums paid by an employer-sponsored health insurance plan are generally not tax deductible.
Are there other tax-advantaged ways to deal with medical expenses?
If you don’t qualify or find it difficult to take advantage of medical expense deductions, you might want to try a different way to get a tax advantage on your health-related expenses. Consider the following:
- Open a Health Savings Account (HSA) — An HSA is a tax-advantaged savings account. Money that is contributed to an HSA account can be used to pay for qualified medical expenses. Your contributions to an HSA are tax deductible, and your withdrawals are also tax-free.
- Open a Flexible Spending Account (FSA) — An FSA is a tax-advantaged account offered through your employer. With an FSA, you can set aside pretax money, up to a certain amount, to pay out-of-pocket medical expenses.
Whether you decide to claim medical expenses on your taxes this year or not, it’s important that you start planning for your taxes now so you feel well prepared. The medical expense deduction can help you reduce your tax burden, so check to see if you qualify and make sure to keep track of your medical expenses and receipts, so you’re completely prepared if you do.