If you or your dependents have been in the hospital or had other costly medical or dental expenses, keep those receipts — they could help cut your tax bill. Here’s a look at how the medical expense deduction works and how you can make the most of it.
What is the medical expense deduction?
For tax returns filed in 2021, taxpayers can deduct qualified, unreimbursed medical expenses that are more than 7.5% of their 2020 adjusted gross income. For example, if your adjusted gross income is $40,000, anything beyond the first $3,000 of medical bills — or 7.5% of your AGI — could be deductible. That means if you had $10,000 in medical bills, $7,000 of them could be deductible.
The 7.5% threshold used to be 10%, but legislative changes at the end of 2019 lowered it.
As part of the $1.4 trillion spending bill Congress passed, millions of Americans will get a permanent break on the deductibility of out-of-pocket medical expenses. Not only is this a great tax break for retirees it will also be helpful for the unemployed, the underemployed and even working folks with employer coverage who are paying ever more in high out-of-pocket medical costs.
Look at your state’s rules, because even if you can’t get the deduction on your federal return, you might be able to on your state return.
It’s important to remember that it’s the year in which you pay for your health care services is when the amount applies toward the deduction — not when you incur the expense.
Be aware that any expenses paid for with funds from a flexible spending account or health savings account cannot count toward the deduction because those contributions are already tax-advantaged.
What kind of medical expenses are tax-deductible?
Below is a summary of what comprises of tax-deductible medical expenses:
- Payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and other medical practitioners
- Hospital and nursing home care
- Acupuncture
- Addiction programs, including quitting smoking
- Weight-loss programs for doctor-diagnosed diseases, including obesity (but diet food and health club dues usually don’t count)
- Insulin and prescription drugs
- Admission and transportation to medical conferences about diseases that you, your spouse, or your dependents have (but meals and lodging don’t count)
- Dentures, reading or prescription eyeglasses, contacts, hearing aids, crutches, wheelchairs, and service animals
- Transportation costs to and from medical care
- Insurance premiums for medical care or long-term care insurance if they’re not paid by your employer and you pay out of pocket after taxes
- Travel costs associated with health care also can be used
- Even modifications to your house — i.e., a wheelchair ramp, perhaps a swimming pool — can count if they were installed for medically necessary reasons
- If you pay for health insurance with after-tax dollars, your premiums might be able to go toward the deduction
These are the medical expenses that you can’t claim for:
- Funeral or burial expenses
- Toothpaste, toiletries, and cosmetics
- Vacations
- Most cosmetic surgery
- Nicotine gum and patches that don’t require a prescription
While you don’t send in your receipts and records with your tax return, you’d need to be able to produce them if the IRS were to ask for proof of those expenses.
