Medical expenses are not cheap and they can add up fairly quickly. If you or your dependents have had pricey medical bills and are looking for some relief, fortunately, in some cases, those expenses can be tax deductible. Here is how you can save money by checking your eligibility to claim your medical expense deduction.
How much of your medical expenses are deductible?
As a taxpayer, you can deduce qualified, unreimbursed medical payments that are more than 7.5% of your adjusted gross income of the previous year. For example, if your adjusted gross income is $50,000 and you have $10,000 in medical bills for the year, you could deduct any expenses over $3,750. The threshold was previously 10% but was changed at the end of 2019 by legislation.
What eligible costs are deductible?
There are a variety of things that can be considered medical expenses. If you’re wondering what counts as a medical expense, you can find the full list in the IRS Publication. Here is a list of what counts as a medical expense:
- Doctor, dentist, surgeon, chiropractor, psychiatrist, psychologist, and other medical practitioner payments.
- Hospital and nursing home care costs.
- Insulin and prescription drugs.
- Addiction programs
- Weight-loss programs for diagnosed diseases including obesity.
- Reading and prescription eyeglasses, contacts, crutches, hearing aids, wheelchairs, and service animals.
- Insurance premiums for medical care or long-term care insurance.
- Transportation to and from medical care.
It’s important to keep in mind that the medical expenses you include can only be those paid during the year. You also can’t include expenses you were reimbursed for.
Medical expenses that are not deductible
Although many medical expenses are deductible for taxes, there are a few that are not deductible. These are the medical expenses that are not deductible:
- Funeral or burial expenses
- Majority of cosmetic procedures
- Over-the-counter medicines
- Toothpaste, toiletries, and cosmetics
- Nicotine gum and patches that don’t require a prescription
How to claim your medical expense deduction
To go through the process of claiming your medical expense deduction, you’ll have to follow a few short steps. Here are the steps to follow if you plan on claiming your medical expense deduction.
Instead of taking the standard deduction, itemize your taxes. You most likely will have to spend more time on tax prep, but if your standard deduction is less than your itemized deductions, itemize to save more money. If on the other hand, your standard deduction is more than your itemized deductions, take the standard deductions to save more time.
Hold on to your receipts
It’s crucial that you keep good track of every single expense and expenditure you have in regards to your healthcare. Hold on to your receipts, and always ask for records from your pharmacy or other care providers. The more bills and information you have, the better off you will be.
Consider your status
When you’re filing for taxes, you can file separately or together with your spouse if you’re married. Filing separately can cause you to lose other tax breaks, which can be quite risky. Many people will often choose to file separately in order to gain the largest tax deduction they can possibly get. The portion of your medical bills that is over 7.5% of your AGI can be deductible, and nothing less – except for in certain states.
Check the threshold in your state
If you’re unable to meet the AGI threshold of 7.5%, fortunately, some states have a lower AGI threshold which could end up saving you more money. In the state of New Jersey for example, the AGI threshold for deducting medical expenses is just 2%. This is much lower than the 7.5% that many other states hold, and as a taxpayer, you can get money back on your state income taxes even if you’re unable to get anything back on your federal income taxes. Make sure to look over what your state’s AGI threshold is so that you don’t miss out on saving money.
Although it may seem like a complex process, if you’ve had to pay a large amount in medical bills, it’s worth checking to see if you’re eligible to claim your medical expense deduction. If you can claim your deduction, you can find some relief in saving money for you and your family for other important expenses.