Medical bills can sure burn a hole on your wallet especially if there are emergencies that come out of nowhere and are not completely covered by one’s insurance. This being said, the IRS allows the taxpayers some relief, making these expenses somehow tax-deductible. In order for anyone to make the most out of the tax deduction, they must know what is regarded as medical bills and the steps to claim a deduction from these.
Deduction from medical bills
The IRS lets taxpayers subtract medical expenses that are qualified and also exceed 10% AGI. The AGI or the adjusted gross income is taxable income and also deducts any adjustments such as contributions and deductions to the traditional interest from student loans and IRA.
Take this, for example, a modified AGI that totals $45,000 that has medical costs of $5,475 can be calculated by $45,000 and 0.10 to find out the 10 percent which means $4,500 is deducted to the amount. This then leaves the taxpayer a deduction on his medical expenses that amount to $975. This was calculated by deducting $4,500 from $5,475.
Which medical bills can be deducted?
The IRS lets the taxpayer subtract preventative care, vision and dental care and treatment surgeries as medical expenses that qualify. Consultations with psychiatrists and psychologists are also deducted. An appliance like contacts, glasses, hearing aids and false teeth as well as prescription medications are also considered as deductibles.
The IRS allows the taxpayer to subtract the expenses for travel when the purpose is medical care. This includes bus fare, parking fees and mileage on cars.
What cannot be deducted?
Medical expenses that are reimbursed, like from the payer’s employer or insurance, are not deductible. This also includes the fact that IRS usually does not allow expenses for cosmetics. The cost for drugs that were not prescribed, with the exception of insulin, as well as purchases primarily for the purpose of general health, like health club bills, toothpaste, diet food or vitamins, nicotine products that are non-prescription or medical bills that were paid for in a previous year cannot be deducted.
How to claim the deduction for medical expenses
To claim the deduction from medical expenses, this must be itemized. Itemizing medical expenses require the taxpayer does not follow the deduction that is already considered as standard but only the expenses deduction in the situation that it is greater than the former.
Those who choose to itemize must use the Form 1040 when filing their taxes and then attach this to Schedule A. Here, they can also document the total of their medical expenses that they paid for that year on Line 1. The AGI income can be found in Line 2.
Then 10% of the AGI is placed in Line 3.
The difference between the expenses as well as 10% of the AGI is in Line 4.
The total amount that is listed in Line 4 will then be subtracted to the AGI to reduce the income that is taxable for that year.
If the amount obtained, along with the standard deductions claimed, is lower than the standard deduction, then this should not be itemized.
Maximizing Medical Expense Deduction
If taxpayers spent loads of their hard-earned cash on medical bills, they can write those off but the first requirement is that it should exceed a hefty amount before it is regarded as a deduction.
- The IRS allows the taxpayer to subtract the costs of medical bills on their tax returns if it is beyond 10% of the AGI. Only the costs that go beyond this amount is deducted.
- Taxpayers aged 65 and older can use 7.5% from the previous year when claiming the medical expenses that have been itemized.
Which Medical Deductions Are Covered?
The taxpayer’s bills from medical and dental expenses along with his or her spouse and dependents are listed on the tax return. Therefore, these are allowed deductibles. However, medical expenses for parents are not considered due to exemption purposes. Another deductible is that of a dependent that has passed away during the year that they were covered.
Medical Deductions That Are Often-Overlooked:
- Travel expenses when going to and returning from locations for medical treatments. The IRS considers this as a deductible and also evaluates the allowance through a standard rate of cents-per-mile. For this income tax year, the rate per mile is 17 cents.
- Insurance payments income has already been taxed. This also covers insurance costs for long-term care, which has certain limits depending on the age of the claimant.
- Medical treatments that are uninsured, like eyeglasses, contact lenses, hearing aids, false teeth, and even artificial limbs.
- Cost of treatment for drug and alcohol abuse.
- The cost of corrective vision surgery through laser. This is also tax-deductible. This is often-overlooked and such a shame because taxpayers can have lots of tax-deductible from this.
- Medical costs as prescribed by physicians. For example, if a doctor prescribes installing a humidifier into the home’s air-conditioning and heating to relieve problems concerning chronic breathing, the device along with the extra costs on electricity for it to operate are partially deductible.
- Costs for medical conferences. Expenses on admission and transportation to any medical conference of a chronic illness that is suffered by the taxpayer, his or her spouse or dependents can be covered. Lodging costs and meals incurred during the seminar cannot be reduced.
- Weight-loss programs. There are some instances that may count as deductible, just like the programs to stop smoking. However, diet programs are also medically necessary. Take this, for example, a doctor can recommend a particular regimen to decrease the risks of obesity and hypertension in one’s health.
One can also get a tax break with a flexible account for medical spending. Taxpayers can check for plans they can participate in to increase pay that they can take home.
Special medical needs
The cost of special medical needs can also be written off. These are wheelchair, equipment that lets the deaf person use a phone, devices that produce television captioning and crutches. Service animals especially there for the hearing impaired and the blind and the costs in retrofitting cars with hand controls and spaces to hold wheelchairs can also be written off.
Another Aging-in-place remodels in the home that can be written off:
- Ramp installation
- Widening hallways and doors as well as lowering cabinets and counters
- Adjusting fixtures and electrical outlets
- Exterior landscaping that can ease the house access
There are home remodeling that can be prescriptions for tax breaks, in the situation that the IRS rules and doctors’ orders are followed. If needed, adding chairlift can also be used to ascend and descend the stairs all for a medical condition. Therefore, this is also considered an expense that is legitimate.
Changes to one’s home in order to make this especially accessible for any handicapped resident are also tax-deductible. Taxpayers must remember that they won’t be able to be considered as deductions from the overall costs of the tax return. Once there is an improvement, it increases the property’s value, then the amount is deducted from the cost of the project. The difference, then, can count as medical expenses.
Elevators are not deductible. IRS regards this as structural changes that add more to the value of the home and therefore does not necessarily require a medical deduction.
Medical yet not tax-deductible
Cosmetic surgery and health club payments or bills from weight-loss programs are not deductible because these are not medically necessary. Operations for hair transplant and electrolysis treatments are also not deductible. For these procedures, taxpayers can consider financing surgeries that are not medical related and has credit card cash-back.
6 Medical Deductions That Can Be Deducted Without the Taxpayer Itemizing
Calculating medical expenses for deduction is difficult due to the Adjusted Gross Income floor of 10%. If the taxpayer is below 65 years of age, it is 7.5%. There are medical expenses that are considered to be deductible despite one not qualifying for deducting the medical expenses in the form of itemized deduction. Deducting expenses can also lower the taxable income and also cut the taxpayer’s taxes. Filing status, as well as the number of dependents, usually does not affect the deductions.
Listed are the medical deductions that the IRS considers, even without itemizing:
- Account Contributions from Health Savings. If the taxpayer contributes any amount to the HSS or the Health Savings Account, then it serves as a deduction from the taxable income of the taxpayer. The maximum that is allowed can reach to a maximum of $3,350 for the individual. For families, it is $6,650 per year. If the taxpayer is beyond 55, he or she can contribute an additional $1,000 every year. If the employer contributes to the HSA, this can either be deducted or not deducted in the contributions.
- Account Contributions from Flexible Spending. Like the HSAs, when there is an employee-sponsored that can be spent in a flexible manner, which is also known as the FSA, the taxpayer is contributing his income before tax and therefore, reducing his income that is taxable. For income tax year of 2016, the rate was $2,550 for every spouse.
- Health Insurance for the Self-Employed. If one is self-employed, he or she can deduct the premiums from the insurance for himself or herself, his or her dependents. The premiums for LTC or long-term care insurance can also be paid for the year.
- Work Experiences That Are Related for the Impaired. If the taxpayer is physically as well as mentally disabled and requires services or equipment in order to perform a job, then this can be deducted. Expenses can also include readers, personal assistants, and pieces of equipment that are required and necessary for the job. There are expenses that are paid by the taxpayer’s employer and are also considered as a reasonable accommodation as it is stated under the ADA or Americans with Disabilities Act.
Personal Physical Injury Damages
If the taxpayer is reimbursed for physical injuries as well as expenses from legal action, then the taxpayer can deduct this amount from the taxes. If they are receiving a settlement and the reimbursement, there is a tax on the settlements but there are no reimbursements. The taxpayers cannot reduce medical costs that have been covered by reimbursement.
Tax Credit on Health Coverage
The HCTC or the Health Coverage Tax Credit covers the monthly health insurance premium for as much as 72.%%. These are premiums that are paid by taxpayers who are regarded as eligible. These are the requirements for those who wish to claim HCTC:
- TAA or Trade Adjustment Assistance recipient
- Recipient of the Reemployment TAA
- Alternative TAA recipient
- PBGC or Pension Benefit Guaranty Corporation pension. This is for the payer who covers his own health insurance.
- Any qualifying members that are listed of the individuals above.
Here is a rundown of the medical expenses you can deduct:
- Fees to doctors, dentists, psychiatrists, surgeons, chiropractors, and other medical professionals.
- Medical insurance premiums that are beyond the portion of what the employer pays
- Long term care insurance premiums that are up to certain limits
- Long term care
- Inpatient drug treatment and alcohol programs
- Ambulance service
- Modifications to the tax payer’s home for medical care, like wheelchair ramps
- Weight loss programs for specific diseases that have been diagnosed by a certain physician
- Fertility treatments like sterilization and pregnancy test kits
- Nursing supplies like breast pumps
- Prescription drugs as well as insulin
- Glasses, hearing aids, contacts, and crutches
- Guide dogs for the deaf or the blind
- Cosmetic surgery required because of a disease or an accident
- Removing lead-based paint from surfaces that are in poor repair and is within the reach of any child
- Admission and transportation going to a conference about a chronic condition of the taxpayer or any of the dependents
- Stop smoking programs, but excluding non-prescriptions drugs such as patches and nicotine gum
- Psychiatric care
For a complete list of deductible medical expenses, anyone can just check the IRS Publication 502. These deductions are then used when filing out Form 1040 or Schedule A. Writing off medical expenses as deductions can make for a healthier bottom line on anyone’s tax return. Taxpayers should make sure that the only appropriate expenses are included because auditing IRS can be stressful. It is also possible to ask for the assistance of experts so there are no mistakes made in taxation and the appropriate deductibles.