Medical and Dental Out-of- Pocket Expenses
When and How Can They be Deductions on Federal Income Taxes?
Oct 19, 2009
If a taxpayer has seen huge out-of-pocket medical or dental costs in a calendar year, they may be tax deductible if they are itemized on Schedule A of the Form 1040. The Schedule A tallies deductions in medical and other categories.
IRS Criteria for Deductible Medical Expenses
To determine what may be deductible, the taxpayer must:
- Calculate the Adjusted Gross Income (AGI) by adding up all sources of income, then subtracting from that total any deductions listed on lines 23-35 on Form 1040. Many taxpayers do not have any of these deductions, so their AGI and total income are the same.
- Calculate the medical expenses that exceed 7.5% of the AGI.
- Add the exceeded amount to any other deductions on the Schedule A. It lists medical expenses, non-federal taxes paid, interest payments (e.g. mortgage), donations to charity, job expenses and other miscellaneous deductions.
- Compare the Schedule A total to the standard deduction. One place to find the standard deduction is on the left margin of page 2 of the 2008 Form 1040. The standard deduction varies according to filing status, e.g., the amount for singles is less than for married couples. The amounts also change each year due to inflation.
If the itemized deductions total more than the standard deduction, it probably means a reduced tax bill.
Example: John and Jane Doe had an AGI of $50,000. They had unreimbursed medical expenses of $10,000, of which $6250 was deductible. Their mortgage interest was $5,000, real estate taxes were $1,500, and state income taxes were $800. These deductions totaled $13,550. The standard deduction for “married filing jointly” (MFJ) in 2008 was $10,900. They should itemize, as the amount of income they would be taxed on is reduced by $2,650, which would cut taxes owed by about $400.
For married couples, if one spouse incurred the majority of the medical expenses, there might be more of a tax advantage to filing MFS (married filing separately) rather than MFJ (married filing jointly). The tax liabilities should be calculated each way before any decisions are made on how to file.
In most cases, tax filers who do not own a home are not going to have itemized deductions exceeding the standard deduction, even with huge medical expenses.
The IRS list of deductible expenses is very long, and includes some surprising ones, such as contact lens solution, trips for medical purposes, and service animals.
This article is but a cursory look at medical deductions. There are many conditions and exceptions in every part of tax law. Tax preparers should be consulted for assurance on what is applicable in a given case.
The alphabetical list below is not exhaustive and there are conditions for many entries that were not included here. Publication 502 - Medical and Dental Expenses is available on-line at the IRS site referenced below and contains detailed information.
Medical and Dental Deductibles and Non-Deductibles
Deductible:
- Abortion (Legal)
- Acupuncture
- Alcoholism (in-patient treatment; transportation costs to AA meetings)
- Ambulance
- Artificial limbs
- Bandages
- Breast reconstruction surgery (following mastectomy for cancer)
- Birth control pills
- Braille publications (difference of cost of regular editions)
- Certain modifications to a home to accommodate the disabled
- Car (controls/equipment for disabled people)
- Chiropractor
- Christian Science practitioner
- Contact lenses (for medical reasons) and cost of lens paraphernalia
- Cosmetic surgery for deformities
- Crutches
- Dental treatment (not teeth whitening)
- Dentures
- Doctor or physician
- Diagnostic devices (e.g. blood sugar test kit)
- Disabled dependent care expenses
- Drug addiction (in-patient treatment)
- Drugs (prescription
- Dyslexia language training
- Eyeglasses (for medical reasons);eye examinations fees
- Eye surgery (defective vision)
- Fertility enhancement
- Guide Dog or Other Service Animal
- Health Institute (with physician statement and prescription)
- Health maintenance organization (HMO) costs (equivalent to insurance premiums)
- Hearing aids – including batteries
- Home care
- Hospital care
- Household help for nursing care or qualified long-term care services
- Hospital services – inpatient care; includes amounts for meals and lodging
- Employer-sponsored health insurance plan (there is a lot of complexity here; check with your tax person)
- Medicare A (only those who enrolled voluntarily and are not covered by Social Security or those who did not pay into Medicare payroll tax)
- Medicare B
- Medicare D
- Prepaid insurance premiums (special rules apply)
- Lead-based paint removal (special conditions apply)
- Legal fees necessary to authorize treatment for mental illness
- Lifetime care advance payments (e.g. founder’s fee – but just the part for medical care)
- Long-term care
- Qualified long-term care services
- Qualified long-term care insurance contracts
- Medical conferences (where subject matter applies to taxpayer, spouse, or dependent
- Medicines (prescription drugs and insulin)
- Nursing home
- Nursing services
- Optometrist
- Organ donor costs
- Osteopath
- Oxygen and oxygen equipment
- Pregnancy test kit
- Prosthesis
- Psychiatric care
- Psychoanalysis (medical care only)
- Psychologist
- Special education (many rules for this category)
- Special home for the disabled
- Sterilization (legal)
- Stop-smoking Programs (but not for non-prescription drugs)
- Surgery
- Telephone and Television – special equipment for hearing-impaired
- Transplants
- Transportation – costs for, and essential to, medical care
- Trips – for obtaining medical services
- Vasectomy
- Vision correction surgery
- Weight-loss program fees for obesity or other diseases – membership dues not included
- Wheelchair
- Wig – for hair loss from disease
Non-Deductible:
- Childcare for a healthy baby ,even if parent is getting medical treatment
- Cosmetic surgery (unnecessary), e.g., face lift, liposuction)
- Dancing lessons (even if doctor recommended)
- Flexible spending account
- Funeral expenses
- Household help (some exceptions for nursing services)
- Maternity clothes
- Medicines and drugs from other countries (except legally imported prescribed drugs)
- Nonprescription drugs and medicines (except for insulin), even if directed by physician
- Nutritional supplements (unless recommended by medical practitioner for a specific condition)
- Teeth whitening
- Veterinary fees (rule may differ for Service Animals)
- Weight-loss Program (unless prescribed by physician for certain diseases, such as obesity)
Sources:
Internal Revenue Service: http://www.irs.gov
Tax Partners and Professionals of Ernst & Young LLP. The Ernst and Young Tax Guide 2007, 22nd Ed., Peter Bernstein, Editor. New York: CDS Books, 2006.
Thompson Reuters. Quickfinder Handbook: Form 1040 2008 Tax Year. Ft. Worth, Texas: Thompson Reuters, 2008.
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