Medical Tax Deductions – An Untapped Advantage

The healthcare sector is increasingly gaining attention as healthcare reform is rolling out and healthcare costs are at an all-time high. For example, for the average American family of four, health costs rose from $18,074 in 2010 to $22,030 in 2013, which amounts to a whopping 22% increase in only 3 years. The medical costs for a family of four in 2013 are comparable to the expenses for tuition, room and board at a 4-year college institution. Moreover, payroll deductions and out-of pocket medical bills for a typical family are almost equivalent to their expenses for groceries, while the out-of-pocket expenses alone match their costs for gas.


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Medical Tax Breaks Infographic

Are medical expenses tax deductible?

As complicated and confusing as the healthcare sector can be, it’s worthwhile to familiarize yourself with its intricacies in order to safe some money. Educating yourself about possible medical tax deductions can lead to substantial pay-offs. Generally speaking, medical expenses are deductible for Americans. According to current law, you may deduct any medical expenses over 10% of your adjusted gross income if you’re itemizing your deductions. Your adjusted gross income is your taxable income minus any adjustments to income such as deductions, contributions to a traditional IRA or student loan interest.

For instance, if your adjusted gross income is $45,000, you could only deduct medical expenses exceeding $4,500, which is 10% of your gross income. Thus, if your medical expenses were $5,475, your deductible medical expenses would in fact be $975. If your medical expenses were less than $4,500, your medical expense deductions would be zero. However, there is a temporary exemption from January 1, 2013 to December 31, 2016 for seniors over age 65 and their spouses who may deduct unreimbursed medical bills exceeding 7.5% of their adjusted gross income. In this example, 7.5 % of $45,000 would be $3,375, so a total of $2,100 in medical deductions could be claimed.

According to IRS statistics from 2010 (when the medical tax deductions threshold was 7.5%), average medical expense deductions amounted to $7,590 for an adjusted gross income between $15,000 and $30,000; $7,192 for an adjusted gross income from $30,000 to $50,000; $7,312 for an adjusted gross income between $50,000 and $100,000; $9,932 for an adjusted gross income from $100,000 to $200,000; $19,850 for an adjusted gross income between $200,000 and $ 250,000; and $30,408 an adjusted gross income of $250,000 or more. It’s important to note, though, that these medical tax deductions were only claimed by taxpayers who filed Schedule A, which is typically referred to as itemized deductions. Itemizing your deductions is particularly advisable if your total itemized deductions exceed the standard deduction.

What medical expenses are tax deductible?

Deductible medical expenses include preventative care, treatment, surgeries as well as dental and vision care (including LASIK). Furthermore, you may also deduct visits to psychologists and psychiatrists, as well as to physical therapists and chiropractors. Any medical bills covering prescription medications and appliances such as glasses, contacts, glasses, false teeth, hearing aids, breast pumps, wheelchairs or oxygen bottles are also tax deductible. Drug addiction treatments and smoking cessation programs are tax deductible, too. You are also able to deduct any travel expenses related to medical care, such as mileage on you car, bus fare or parking fees. Deductible medical expenses that are often overlooked include fertility treatments like in vitro fertilization, birth control measures such as vasectomies, and cosmetic surgeries that are medically necessary. Likewise, you can deduct all these expenses incurred for a spouse or dependent.

Are medical insurance premiums tax deductible?

Furthermore, your health insurance premiums might be tax-deductible as well. If you’re self-employed and pay for your and your dependents’ health insurance yourself, you may be able to claim this expense as a medical tax deduction.If you work for a company that offers health insurance as part of what’s known as a cafeteria plan, you may have a health savings account (HSA). Your contribution to your HAS is 100% tax-deductible up to a certain amount (which changes each year). Medicare Part B, Part D and Medigap are deductible, too. If the health insurance premium included in your or your dependents’ college tuition is separately stated, you may also claim this as a medical expense deduction.

Broadly speaking, you may only deduct health insurance premiums if you paid for them with your own “after-tax” money. Health care premiums you paid for through employment-based health insurance are typically taken out of your paycheck before your income taxes are calculated. Thus, you already receive a tax benefit by not paying taxes on these expenses, so they can’t be claimed as medical tax deductions. In general, any medical expenses for which you’re reimbursed, such as by your health insurance or your employer, aren’t tax-deductible. Moreover, you can’t deduct the cost of non-prescription drugs (except insulin) or other purchases for general health such as toothpaste, health club dues, vitamins, supplements, diet food or non-prescription nicotine products. In addition, you may not deduct medical bills paid in a different year.

It’s important to remain extremely organized if you’re claiming these medical tax deductions to avoid the risk of an IRS audit.  Make sure you’re only claiming expenses exceeding the 10% threshold and medical bills you paid for with “after-tax” money. Keep record of all your medical expenses, particularly those you plan to deduct.

This educational graphic on medical tax deductions was created by the medical billing and coding training program at Carrington College. Learn more about our medical billing and coding training and other health care training programs by contacting us today.