What Medical Expenses Are Tax Deductible

Medical expenses can reduce your federal tax liability if you itemize deductions, but only the amount exceeding 7.5 percent of your adjusted gross income qualifies. For most taxpayers, this threshold is high enough that the deduction only applies in years with significant medical expenses.

The 7.5 percent threshold

If your AGI is $80,000 and you had $10,000 in qualifying medical expenses, only $4,000 is potentially deductible, since $10,000 minus 7.5 percent of $80,000, or $6,000, leaves $4,000. This amount is added to your other itemized deductions and compared against the standard deduction.

For the deduction to actually benefit you, your total itemized deductions must exceed the standard deduction, which the IRS adjusts most years for inflation. Check the current standard deduction amount for your filing status on IRS.gov before assuming your medical expenses will move the needle, since a medical deduction only helps once your total itemized deductions clear that bar.

What qualifies

Payments to physicians, surgeons, dentists, and other medical practitioners for diagnosis, treatment, or prevention of disease all qualify, along with hospital and nursing home costs, prescription drugs and insulin, medical equipment including hearing aids, wheelchairs, and crutches, and long-term care services when medically necessary. Health insurance premiums are deductible above the line on Schedule 1 without the 7.5 percent limitation if you are self-employed. Medicare premiums and transportation to and from medical care also qualify.

What does not qualify

Non-prescription vitamins and supplements do not qualify unless specifically prescribed, and cosmetic procedures that are not medically necessary are excluded entirely. Gym memberships do not qualify even when a doctor recommends them, nor do funeral expenses, insurance premiums already paid with pre-tax dollars through an employer plan, or costs already reimbursed by insurance or an HSA.

Special rules for HSA and FSA reimbursed expenses

You cannot deduct medical expenses that were paid with or reimbursed by HSA or FSA funds. The tax benefit was already received when the contributions were made or the reimbursement was taken, so deducting the same expense again would double-count the tax benefit.

Tracking throughout the year

Keep receipts for all medical expenses as they happen rather than trying to reconstruct them at year end. Tally the total periodically and compare it against 7.5 percent of your projected AGI. If you are close to the threshold, consider accelerating or deferring elective expenses across tax years to land the deduction in the year it will actually help.

Medical expense tracking is valuable even if you do not itemize. HSA reimbursements require documentation of qualifying expenses regardless of your tax situation, and insurance disputes sometimes require proof of what you actually paid. Keep records regardless of whether they end up affecting your taxes.

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Bill Advantage is a document literacy tool. Nothing in this article constitutes legal or medical advice.