Paying for health insurance and medical bills can get expensive. Luckily, you can recoup some of those costs when you file your taxes by taking a deduction for medical expenses. To do so, the expenses in question must meet the qualifications outlined by the IRS. We’ll show you how to figure out whether your expenses qualify, and how to calculate and take your deductions. And once you’ve figured out your deductions, a financial advisor could help you connect your tax strategies with your overall financial goals.
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The IRS defines medical expenses as the “costs of diagnosis, cure, mitigations, treatment, or prevention” of an injury or disease. These expenses include payments to doctors and other medical practitioners, prescriptions and insulin, X-rays and laboratory tests, eyeglasses and contact lenses, and nursing help and hospital care, among others. If you have medical care provided to you then its best to keep track of expenses in case it qualifies.
President Trump’s Tax Cuts and Jobs Act allowed taxpayers in 2017 and 2018 to deduct the total amount of medical expenses that exceed 7.5% of their adjusted gross income (AGI). This threshold was originally scheduled to go up to 10% of AGI in 2019, but the 7.5% of AGI was extended to tax year 2021. The Consolidated Appropriations Act of 2021 made the 7.5% threshold permanent.
You can get your deduction by taking your AGI and multiplying it by 7.5%. If your AGI is $50,000, only qualifying medical expenses over $3,750 can be deducted ($50,000 x 7.5% = $3,750). If your total medical expenses are $6,000, you can deduct $2,250 of it from your taxes.
Note, however, that you’ll need to itemize deductions to deduct medical expenses. Itemizing deductions only makes sense if the total deductions you qualify for would exceed your standard deduction – a fixed dollar amount that reduces the amount of money you’re taxed on.
The Tax Cuts and Jobs Act effectively doubled the standard deduction, which makes it less likely that you’ll wind up itemizing. For the tax year 2023, which you’ll file in 2024, the standard deduction limits are as follows:
These increase for the 2024 tax year to:
If the value of your total itemized deductions exceeds your standard deduction, you’ll need to complete a Form 1040 and detail every deduction in an itemized list. The standard deduction may be easier, but if you paid a lot of healthcare expenses or have other deductible expenses, they could help you reduce your tax bill.
Many medical-related costs can be included in your itemized deductions. Remember that you can only claim medical expenses that you paid for this year, whether it’s for you, your spouse or another dependent. Dependents can include children and other relatives you care for. Here are the expenses that qualify:
A self-employed health insurance deduction is allowed for those who qualify, but it’s adjusted for income and not an itemized deduction.
While there’s a decent amount of healthcare costs you can itemize on your taxes, there are a few that don’t qualify, including:
Any medical expenses that you already get reimbursed for, whether from insurance or from your employer, can’t be deducted from your taxes. You also can’t deduct your employer’s share of health insurance premiums. If you’re still not sure which expenses qualify, you can determine if it’s eligible through the IRS.
There are plenty of qualifying medical expenses that you can claim on your taxes. However, you can only deduct expenses that exceed 7.5% of your adjusted gross income. And if your total itemized deductions don’t exceed the new, higher standard deduction, then you won’t take the deduction. Review the list of expenses that qualify (and the ones that don’t), and decide whether it makes sense to take this deduction.
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Dori ZinnDori Zinn has been covering personal finance for nearly a decade. Her writing has appeared in Wirecutter, Quartz, Bankrate, Credit Karma, Huffington Post and other publications. She previously worked as a staff writer at Student Loan Hero. Zinn is a past president of the Florida chapter of the Society of Professional Journalists and won the national organization's "Chapter of the Year" award two years in a row while she was head of the chapter. She graduated with a bachelor's degree from Florida Atlantic University and currently lives in South Florida.
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