The federal tax code permits a tax deduction for medical and dental expenses you pay for yourself and certain other people once the amount of the expenses reaches a threshold. Think of the threshold like a yearly deductible in a health insurance policy. You have to pay the amount each year before the benefit starts. In this case, the benefit is that all expenses the IRS defines as "medical expenses" over the threshold can be deducted on your tax return. A deduction decreases your taxable income. This results in your paying less tax.

Reimbursed amounts are not permitted as medical tax deductions. 

The Threshold

No medical or dental expense deductions are allowed unless:

• The expenses are considered to be medical expenses by the IRS AND
• The amount of the expenses in a given year are at least equal to seven and a half percent (7.5%) of your adjusted gross income, (your Adjusted Gross Income is found on IRS form 1040, line 38) AND
• The total of your itemized deductions exceeds the amount you can claim as a standard deduction.

Definition Of Medical Expenses

The IRS has a long list of expenses it considers to be Medical Expenses. It is worthwhile taking a few minutes to look at the list because there are likely to be expenses you may not think of as an expense for tax purposes. For example:

• Travel expense to and from a doctor is considered to be a Medical Expense. 
• Health insurance premiums are deductible if paid for with after-tax dollars. This includes payments for COBRA, and Medicare Parts B and D.
• Medical care does not have to be provided in the United States. Drugs from outside the U.S. must be legally approved for import.

To Maximize A Medical Expense Deduction

If you have large enough medical bills one year to meet the threshold, maximize your deduction by paying every medical expense you can during that year for yourself and the people on the IRS list.

If you find that you are coming close to the end of the year, and the medical expenses you paid for do not add up to the minimum required, consider postponing payments until the following year when they may help.

Paperwork

If you include medical expenses in your itemized tax deductions, make sure to save your medical bills and payment statements as proof. 

NOTE: This information is about federal tax. As a general matter, the federal situation is followed on a state level. However, it is worth checking in your state. For example, the threshold in your state may be lower.  For information concerning the laws in your state or local area, contact your accountant, a tax service or your state revenue agency. Contact information for state revenue agencies can be found at: www.shgresources.com/agencies/revenue/.

For more detail, see the other sections of this document.

Research by:

Dexter D.J. Samida, Esq.
Sullivan and Cromwell
New York, NY

Please share how this information is useful to you. 0 Comments