Medical expenses are high in the US. They can be difficult to pay along with a major tax bill at the end of the financial year.
The good news is that the IRS does make medical expenses partially deductible. So, if you’re not claiming medical expenses as a deduction, you’re potentially missing out on thousands of dollars.
Here’s what you need to know about claiming medical expenses on your tax return.
What Can You Deduct on Your Tax Return?
When talking about medical expenses deductions, the IRS talks about qualified medical expenses. This means that not every type of medical expense is deductible.
The rule is that you can make deductions for any medical expenses that exceed 7.5% of your calculated adjusted gross income. This applies to the financial years 2017 and 2018.
Starting from January 1st, 2019, taxpayers are only allowed to deduct un-reimbursed allowed medical expenses that are above 10% of their adjusted gross income.
For future reference, adjusted gross income is your taxable income minus deductions, interest payments on student loans, and employer sponsored programs like the traditional IRA.
For example, if your adjusted gross income was $45,000 and you had medical expenses of $5,475 you would take 0.075 and multiply it by $45,000. This equals $3,375. So, any medical expenses above this figure are deductible. In this case, that would be $2,100 in medical expenses.
Which Medical Expenses Can I Deduct on My Tax Return?
The IRS is specific on which medical expenses can be deducted. Here are some of the medical expenses that can be deducted:
- Preventative care.
- Medical treatment.
- Dental and optical care.
- Visits to psychiatrists and psychologists.
- Prescriptions are also deductible, including hearing aids, glasses, and contact lenses.
Furthermore, there are medical mileage deductions that can be made when you drive to receive medical care. Bus fare and parking fees can also be deducted from your tax return.
What Can’t You Deduct from Your Tax Return?
Reimbursed medical expenses can’t be deducted from your tax return. Anyone with insurance who receives money back from their medical treatment won’t be eligible to claim. The same goes for any employer sponsored healthcare programs.
Cosmetic medical procedures are excluded from medical deductions. Non-prescription drugs are also excluded from deductions. Believe it or not, this also includes insulin.
Any general health purchases, like vitamins and dietary food, are excluded. And any deductions must be claimed in the same tax year as the purchase was made.
How to Claim a Medical Expenses Deduction from the IRS
All deductions need to be itemized in order to claim medical expenses. Standard deductions don’t apply here. If your standard deduction is higher than your itemized deduction, you shouldn’t claim this deduction. Tax preparation software can help to calculate this for you.
If you are going to itemize your deductions, you can itemize on Schedule A, which is attached to the standard Form 1040.
Here’s a short guide on how to do it:
Step One – Take Schedule A and report your total medical expenses on line one, along with your adjusted gross income on the following line.
Step Two – Include the figure for 7.5% of your adjusted gross income on the next line. On line four, you should enter the difference between line three and your total medical expenses.
Step Three – Now you have a figure that will be used to subtract from your adjusted gross income to reduce how much you pay.
Take note that if the figure is lower than the standard deduction you shouldn’t itemize your medical expenses.
You can use online tax preparation software to help you work out these figures quickly and easily.