Millions of COVID-19 infections have put a strain on household medical spending, but those and many other health care expenses might qualify you for a tax deduction. Depending on the cost of your medical expenses, it might make sense to itemize your deductions rather than take the standard deduction. Before you file a paper return or use e-tax filing to get a faster return, learn the rules for deducting medical expenses to maximize your refund.
Can You Deduct Medical Expenses?
The answer to this question is “sometimes.” Qualifying medical expenses are listed in IRS Publication 502 and include paying for professionals like doctors, surgeons, dentists, and ophthalmologists to diagnose, treat, cure or prevent illness or disease. Qualifying expenses can be for yourself, your spouse, and your dependents, and you should claim the deduction for the expenses in the year that you pay for them, regardless of the year that you actually receive the treatment. You can also deduct the costs of transportation to reach medical services, such as ambulance costs or 17 cents per mile driven.
Some costs are nondeductible expenses, however, like cosmetic procedures, hair transplants, swimming and dancing lessons, teeth whitening, and other items that are unnecessary or only for the improvement of general good health.
To count qualifying medical expenses as part of the medical expenses deduction, the expenses must be paid by you — not by your insurance company or reimbursed to you later. For example, any copays or insurance deductibles that you pay will count towards your deduction.
But if you pay medical bills that are reimbursed by your insurance company, you can’t include those costs. You also can’t include any expenses that you paid with a tax-free distribution from a health savings account or flexible savings account.
Is Health Insurance Tax Deductible?
Health insurance costs are often tax deductible if they are costs that you pay out of pocket and you don’t use those medical insurance premiums to qualify for another tax credit or deduction, such as the premium tax credit. You also can’t include part the cost of policies that cover both medical insurance and other types of insurance unless you have a statement showing the portion of your premium that goes to each type of coverage.
Eligibility to Claim the Deduction
Any taxpayer can claim the medical expenses deduction — regardless of age or filing status — as long as you itemize your deductions. When you itemize, you give up your standard deduction. So it only makes sense to claim if the total of your itemized deductions exceeds your standard deduction. Other itemized deductions include tax-deductible donations to charity, mortgage interest, and state and local income, sales, and real estate taxes.
AGI Threshold for Deducting Medical Expenses
For the 2020 tax year, you’re allowed to deduct medical expenses that exceed 7.5 percent of your adjusted gross income, regardless of your age. For example, if your AGI is $70,000, your threshold is $5,250. So, if you have $6,000 in deductible medical expenses, your deduction reduces your income by $750. The 7.5 percent rule has been the standard for the last few years, and many families with high health care costs–particularly those with seniors or people with disabilities–came to rely on that deduction. The arrival of the pandemic made it even more critical and at the end of 2020, Congress made the medical deducation permanent as part of the most recent round of coronavirus legislation.
Reporting Your Medical Tax Deductions
When you file your income tax return, you itemize your deductions on Schedule A (Form 1040):
Write the total amount of your medical expenses on Line 1.
Then, go to line 2 and enter your adjusted gross income.
Multiply it by 0.075 to calculate your deduction threshold and enter it on Line 3.
Finally, subtract the threshold from your total expenses and enter your final medical expenses deduction on Line 4.
You don’t have to submit any receipts or other records with your income tax return, but you do need to keep records in case your return is audited.
Turning Medical Costs into a Larger Tax Refund
No one wants to go through medical difficulties, much less have to pay for the medical expenses. But, if you know the rules for the medical expense deduction 2020 on your taxes, you might be able to reduce your tax liability and keep more of your cash.
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Andrew Lisa Contributed to the reporting for this article.
Last updated: Jan. 7, 2021