For many people, unreimbursed medical bills and other health care costs are a significant expense, especially as they get older. Fortunately, many of these expenses are tax-deductible, and some available write-offs may surprise you. To offset the cost of health care, familiarize yourself with the types of expenses that are deductible and be sure to document them with receipts or other records.
Calculating your deduction
If you itemize deductions on your income tax return, you’re permitted to deduct a variety of medical and dental expenses for yourself, your spouse and your dependents. But there’s a catch: You can deduct them only to the extent the total exceeds 7.5% of your adjusted gross income (AGI). For example, if your AGI is $200,000, you may claim up to $15,000 in medical and dental expenses ($200,000 x 7.5%). So if you have $20,000 in eligible expenses, you may claim a $5,000 deduction ($20,000 – $15,000).
Keep in mind that the deduction is limited to unreimbursed expenses. You must reduce your total deductible expenses by any reimbursements from insurance or other sources, regardless of whether you receive the reimbursement directly or it’s paid on your behalf to a medical provider.
Identifying eligible expenses
Don’t automatically assume that your expenses aren’t high enough to generate tax deductions. In addition to traditional doctor and hospital bills and prescription drugs, there are many deductible expenses that are easily overlooked, and the costs can add up quickly.
Examples include payments for:
- Acupuncture and other alternative treatments,
- Inpatient treatment for alcohol or drug addiction,
- Smoking-cessation programs,
- Weight-loss programs for obesity or other physician-diagnosed diseases,
- Admission and transportation to medical conferences (but not meals and lodging) related to a chronic illness of you, a spouse or a dependent,
- Adaptive equipment, such as false teeth, eyeglasses, contact lenses, hearing aids, crutches and wheelchairs,
- Guide dogs,
- Premiums for health insurance or qualified long-term care insurance (other than any portion paid by an employer), and
- Nursing home care, including meals and lodging, if the availability of medical care is the principal reason for being in the nursing home (otherwise, only the cost of medical care is deductible).
You can also claim transportation expenses essential to obtaining eligible medical care. This may include the cost of a taxi, bus, train or ambulance, as well as personal vehicle costs.
Deducting self-employed health insurance
If you’re self-employed, you’re entitled to deduct 100% of the health insurance premiums you pay for yourself, your spouse, your dependents and your nondependent children under age 27, regardless of whether you itemize. (The deductible amount may be limited depending on the taxable income of the business.) You can even deduct premiums you pay for Medicare Part B, Medicare Part D or a medigap policy, if you continue to run your business after you qualify for Medicare.
However, there’s one important caveat: You can’t claim the self-employed health insurance deduction if you’re eligible to participate in a subsidized health plan offered by an employer of you or a family member.
If you’re self-employed and eligible for the 20% qualified business income (QBI) deduction, also weigh the potential benefits of the self-employed health insurance deduction against any resulting reduction in the QBI deduction. Depending on your particular circumstances, it may be preferable to claim insurance premiums as an itemized deduction to preserve a larger QBI deduction.
Crunching the numbers
Before dismissing the idea that you would benefit from health care expense deductions, contact your tax advisor. Together, you can work through the details and see how your expenses stack up against your AGI.