Seniors who incur high medical bills every year may wonder whether or not they can deduct these expenses to reduce their tax burden.
Whether you’re planning for tax season or upcoming medical expenses, understanding the IRS’ rules and limitations can help you make the most of your deductions.
Medical bills can be tax deductible, but only for amounts exceeding 7.5% of your adjusted gross income (AGI) and only if you itemize your deductions. This 7.5% threshold makes it challenging for some taxpayers to deduct their medical bills. But for those with substantial medical expenses, you can reap significant savings.
In this article, we’ll explain the 7.5% AGI threshold rule and which medical expenses qualify and which don’t. We’ll also where to go if you’re not sure if your medical expenses are deductible.
Key takeaways
Medical bills are tax deductible if you itemize the expenses and if the total amount exceeds 7.5% of your AGI.
Only certain medical expenses qualify, including those that are deemed essential for medical care and are not compensated by insurance.
Eligible medical expenses for tax deduction include out-of-pocket payments made to doctors, dentists, hospitals, psychotherapists and for prescription medication and essential medical equipment.
The basic rule: 7.5% AGI threshold
Medical bills that exceed 7.5% of your AGI for the year are tax deductible when you itemize your deductions. This includes medical and dental expenses paid for yourself, your spouse, or your dependents.
However, medical bills that don’t meet the 7.5% threshold are not tax deductible.
Which medical expenses qualify?
Deductible medical expenses are expenses that are not compensated by insurance or otherwise, regardless of how you receive payment.
Deductible expenses can include payments made for the diagnosis, cure, mitigation, treatment, or prevention of disease as well as for treatments affecting any structure or function of the body.
Doctor and hospital visits
Deductible medical fees include payments made for doctor and hospital visits, including payments made for:
Primary care and specialist visits
Inpatient hospital care
Surgeries
Lab tests and diagnostic procedures
Urgent care and emergency room visits
Prescription medications
Nearly all prescription drugs are deductible, including insulin. However, non-prescription drugs, including over-the-counter OTC medications, are not tax deductible.
Dental and vision care
Expenses paid for medically necessary dental and vision care are also tax deductible. However, cosmetic procedures, like teeth whitening treatments, are not tax deductible.
Examples of tax deductible dental and vision care expenses include:
Dental cleanings, fillings, crowns, root canals, dentures, braces
Reading or prescription eyeglasses
Contact lenses
Laser eye surgery (LASIK)
Insurance premiums
You can deduct amounts paid for insurance premiums to cover medical care or qualified long-term care, including premiums paid for Medicare and Medicare supplement plans.
However, you cannot deduct the portion of your premiums considered paid by your employer.
If you’re self-employed and have a net profit for the year, you may be able to take a self-employed health insurance deduction. This deduction is an adjustment to income rather than an itemized deduction.
Mental health and therapy
Payments made for visits to psychiatrists, psychologists, and other licensed therapists are tax deductible if therapy is treatment for a diagnosed mental illness. Therapy for marital counseling, on the other hand, is not tax deductible.
You can also deduct payments made for substance abuse treatment programs, including the cost of inpatient treatment at centers for alcohol and drug addiction and smoking cessation programs.
Medical equipment and supplies
You can deduct payments made for medically necessary equipment and supplies, including:
Wheelchairs
Crutches
Blood pressure monitors
Oxygen equipment
Orthopedic shoes
Home modifications for medical care
Certain home modifications can be tax deductible if the main purpose of the modification is medical care and if they don’t increase the value of your home.
Examples of home modification expenses that are tax deductible include:
Wheelchair ramps
Widening entrances and exits
Handrails or grab bars
Moving or modifying electrical outlets or fixtures
Stairlifts
Transportation for medical care
Transportation expenses that are essential to receiving medical care qualify for tax deduction, including:
Gas and oil
Standard mileage rate to/from medical appointments
Parking and tolls
Public transportation fares
Taxi fares
Ambulance services
Long-term care services
You can deduct the cost of residential nursing home care if the availability of medical care is the main reason for being in a residential nursing home.
You may also be able to deduct the cost of home health aides or adult day cares if the care is deemed medically necessary.
Alternative and complementary medicine
If your doctor prescribes care by an alternative or complementary practitioner, like an acupuncturist or chiropractor, their fees may also be tax deductible.
Bottom line
If you have a lot of medical expenses and want to reduce your tax burden, the good news is that medical bills are tax deductible if you itemize your deductions and the total exceeds 7.5% of your AGI.
In order to deduct your eligible medical expenses for the year, be sure to keep meticulous records of the type and amount of expenses paid.
If you’re unsure whether or not your medical and dental expenses are deductible, you can use this tool with the IRS to determine your eligibility.
Sources
Topic no. 502, Medical and dental expenses | Internal Revenue Service. (n.d.). https://www.irs.gov/taxtopics/tc502
Can I deduct my medical and dental expenses? | Internal Revenue Service. (n.d.). https://www.irs.gov/help/ita/can-i-deduct-my-medical-and-dental-expenses
