What You Should Know About Deducting Medical Expenses

deducting medical expenses

Here are eight things you should know about deducting medical expenses:

1. Health Insurance Premiums:
Self-employed persons and more-than-2% shareholders of an S corporation
deduct health insurance premiums on Form 1040, line 29 instead of Schedule A. Other taxpayers must claim health insurance premiums as a medical expense on Schedule A along with their other medical expenses. Unfortunately, Schedule A limits the medical expense deduction. To get a tax benefit via Schedule A, total medical expenses, including health insurance premiums, must exceed 10% of adjusted gross income (AGI) for taxpayers under 65 (7 1/2% of AGI for taxpayers 65 or older).

2. AGI Floor For Taxpayers 65 or older:
For 2015 (and 2014), the AGI threshold is 7 1/2 % of AGI if you or your spouse is age 65 or older as of December 31. (For taxpayers under 65, the AGI floor is 10%.)

3. Include Expenses Paid During the Tax Year:
You can include only the expenses you paid during the current tax year. For example, for 2015, only include expenses you actually paid during 2015. If you paid by check, the date you mailed or delivered the check is usually considered the date of payment.

4. Costs to Include:
You can include most medical and dental costs that you paid for yourself, your spouse and your dependents. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.

5. Expenses that Qualify:
You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. The cost of prescription drugs and insulin also qualify. For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses.

6. Travel Costs:
You may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel.

7. Health Savings Accounts or Flexible Spending Arrangements:
No double benefit is allowed. You can’t claim a tax deduction for medical and dental expenses that you paid with funds from your Health Savings Account or Flexible Spending Arrangement. This is because amounts paid with funds from those plans are usually tax-free.

8. State Medical Expense Deduction:
Although, for federal income tax purposes, your medical expense deduction may be limited by the 10% of AGI floor if you're under 65 (or 7 1/2% of AGI if you're 65 or older), keep in mind, this rule applies to your federal return. Your state may not follow the federal rules for deducting medical expenses (they may not have an AGI "floor"), and therefore, allow you to claim 100% of your medical expenses. Arizona is one such state where may claim 100% of medical expenses regardless of age. This can significantly increase your state refund (or reduce your state liability). Check the rules of your state for deducting medical expenses.