You can deduct medical and dental expenses that are over 7.5% of your adjusted gross income (AGI). Medical insurance reimbursements reduce your deductible amount.

You pay $10,000 for medical and dental care for the year. Your AGI is $100,000. You can deduct $2,500 ($10,000 − (100,000 × 7.5%)) as an itemized deduction.

If your medical insurance reimbursed $8,000 of your expenses, you cannot take a deduction. The $2,000 ($10,000 − 8,000) of unreimbursed expenses does not exceed $7,500 ($100,000 × 7.5%).

Because of these limitations, many individuals cannot take a deduction for medical and dental expenses. Increase the likelihood of getting a deduction by identifying all of your qualifying medical expenses.

Payments for the diagnosis, cure, mitigation, treatment, or prevention of disease qualify. These expenses can be for you, your spouse, or relatives you support. Expenses that are beneficial to your general health do not qualify.

Deductible Medical Expenses

  • Medical and dental insurance premiums including Medicare Part B premiums and limited amounts for long-term care insurance premiums

  • Fees for doctors, dentists, and other medical practitioners
  • Fees for hospitals and medical centers providing psychiatric, drug, or alcohol treatment, including meals and lodging

  • Fees for physician-prescribed weight-loss programs to treat and existing disease
  • Special equipment, such as wheelchairs, crutches, artificial limbs, eyeglasses (including contact lenses), hearing aids, and breast pumps

  • Improvements to your home such as elevators, air filtration equipment, and swimming pools to the extent they exceed the increase in value of your home and are needed for medical purposes

  • Transportation costs, including auto expenses at either 19¢ (16.5¢ for 2010) per mile or your actual costs

  • Cosmetic surgery, if it corrects a deformity arising from a birth abnormality, a personal injury, or a disfiguring disease

  • Special schools or homes for people with mental or physical disabilities

  • Nursing homes and other costs for long-term care

This list includes some examples of the types of medical expenses that are deductible. If you have made a payment that might qualify, research it. The list of qualifying deductions continues to expand.

Do not forget to include medical and dental insurance premiums that are withheld from your wages. Check your pay records to see if you are sharing your health insurance costs with your employer.

NOTE: If you are self-employed, you may be able to deduct 100% of your health insurance costs in arriving at your adjusted gross income.

NOTE: Employees may be able to take advantage of Health Savings Accounts (HSAs) to pay health care costs. HSAs allow workers with high-deductible health insurance to make pre-tax contributions of up to $3,050 annually ($6,150 for families). If you are 55 or older, you can contribute $1,000 extra to your HSA annually. Employees of small businesses and self-employed people may be able to take advantage of medical savings accounts (Archer MSAs) to pay health care costs. The ability to create new Archer MSAs expired on December 31, 2007, but contributions to existing Archer MSAs may continue.

Do Not Split Medical Care Expenses

For purposes of the medical expense deduction, the definition of a dependent is expanded. The medical expenses of relatives you support, such as parents, grandparents, and children living away from home, are deductible even if you cannot claim the relatives as dependents because they received too much income or were married. Also, for these purposes, dependents include children from a previous marriage even if your former spouse claims them as dependents.

In many cases, children will share the medical care expenses, such as nursing home costs, of a parent. Sharing the expense decreases the likelihood that anyone can get a medical expense deduction. Instead, designate one family member who will benefit from the medical expense deduction as the person who pays. The other family members can give their share to the payer. From year to year, the family members can take turns paying the bills.

For the same reason, do not split the medical care costs of children with your former spouse. Continue to share the costs, but identify which of you is most likely to obtain a medical expense deduction. That parent should actually pay the children’s medical bills for the year. Alternatively, one of you can pay the bills one year and the other pay the next year.

A child who pays taxes can often benefit from a medical expense deduction when a parent cannot. The parent can give the money to the child so the child can make the payment.

In short, have a person who can benefit from the medical expense deduction make the payments.

 

REVIEW QUESTION

True or False? Fees for meals at hospitals for alcohol treatment are not deductible.

Answer: False

Fees for meals and medical centers providing psychiatric, drug, or alcohol treatment, including meals and lodging are deductible.

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