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Medical Expense Tax Deduction

By March 7, 2023January 30th, 2024Personal Tax Items
Medical Expense Tax Deduction

Medical expenses are tax deductible. The IRS allows you to deduct certain unreimbursed medical and dental expenses that exceed 7.5% of your Adjusted Gross Income (AGI). But how do you go about doing so?

In order to qualify for the medical expense tax deduction, you need to utilize the itemized deduction. Every individual that files a tax return either qualifies for the standard deduction which is a flat amount or they can itemize.

How are Medical Expenses Defined?

We all know how medical expenses can add up quickly. If you or any of your dependents have costly medical bills, be sure to hang on to those receipts.

Tax laws define medical expense as costs for diagnosis, cure, mitigation, treatment, or prevention of disease as well as treatments affecting any part or function of the body. With this definition, insurance premiums know what costs get covered. This includes doctors, dentists, hospital stays, diagnostic tests, prescription drugs, and medical equipment. Other eligible costs are often overlooked, these include acupuncture, child care for newborns, hotel stays for medical visits, homecare, service animals, and special diets.

If you have incurred significant medical bills that are not covered by your insurance, you might be able to claim them on your tax return.

How Can You Qualify for a Medical Expense Tax Deduction?

As mentioned, individuals that file a tax return can opt for a standard deduction or itemize. If you have enough qualifying expenses, you can utilize itemized deduction to have a larger reduction instead of a flat rate. And yes, you can itemize medical expenses.

Medical expenses can be used for itemized deduction as long as a total medical expense is over 7.5% of your AGI. This means when you fill out your tax return, you multiply your AGI by 7.5% and you’ll get the minimum medical expense you can have in order to qualify for a deduction.

This is what we like to call the deduction floor. Once you meet the floor for medical expenses, anything in excess of that floor amount can be deducted as medical expenses. If you make $1000 a year, your AGI is $1000. If you have medical expenses, you would need to use the itemized deduction. Just multiply 1000 by 7.5%. That’s $75, any medical expense that goes over that amount you can take to that deduction.

In the same scenario, if you have a medical expense of $100, which is $25 over the floor then the $25 can be your medical expense tax deduction. You need to make sure you have medical expenses above 7.5% and be specific about what you are adding to the itemized deduction.

Which Medical Expenses Can Not Be Deductible?

You can only deduct unreimbursed medical expenses. If your insurance covered the expense, or if your employer reimbursed you for it, you do not qualify for the deduction. In addition, the IRS disallows deductions for cosmetic procedures, non-prescription ducts except for insulin, general toiletries, funeral, and burial expenses.

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