Unexpected medical emergencies, as well as the rising cost of routine care, take a toll on your wallet. To further complicate things, many of these costs are not always shouldered by your insurance, so you may find yourself having to pay out of pocket. Luckily, the IRS allows you to deduct some of these expenses. As of January 1, 2017, you can deduct allowable medical care expenses during the tax year that exceed 10 percent of your adjusted gross income. While you are able to deduct unreimbursed expenses such as therapy, not all medical expenses are eligible for tax deduction.
What Qualifies as a Deductible Medical Expense?
Various therapies and professional counseling sessions are, in fact, allowable for deduction. These include physical, speech, massage, psychiatric and many other forms of therapy provided by a professional. According to IRS Revenue Ruling 55-261, the only eligible medical deductions are for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.” The IRS’ website has an extensive list of exactly what taxpayers can claim on their returns as qualified medical expenses. Everything ranging from dental deductions to medical-related travel and accommodations may qualify.
While the IRS does allow for some medical costs to be deducted, you can do so only for costs that surpass 10 percent of your adjusted gross income, or AGI. To determine your AGI, take your taxable income and subtract any adjustments such as deductions or contributions to retirement like traditional IRAs and 401(k). For example, if your AGI is $50,000, you can only write off medical costs greater than $5,000.
How to Claim Medical Deductions
In order to claim these deductible medical expenses, you must list qualifying deductions on Form 1040, Schedule A. This means you will have to itemize deductions, as you cannot write off medical care expenses with standard deductions. Although it is tempting to itemize in order to claim these deductions, you might find out that your standard deductions are greater – at which point you can opt to go with whichever gives you the larger deduction.
The therapy you are able to deduct on your taxes doesn’t necessarily have to be for yourself. Therapy or counseling for your spouse or qualifying dependent can also be deducted. Marriage counseling, however, is not a qualifying medical expense, as the IRS ruled it does not pertain to a mental or physical defect. But, if you're divorced, any eligible medical cost paid for a dependent (provided it exceeds 10 percent of your AGI) qualifies for a deduction, even if the other parent claims the child on his tax return.
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When Should You Claim Deductions for Therapy?
The IRS is very clear in regards to when you are able to claim medical-related deductions. You can write off costs associated with medical care only for the year in which the services were paid, and not the year in which they were provided. For instance, if you paid for services in 2017, but do not actually receive the services until 2018, then you would itemize these costs when you file for the 2017 tax year.
Previous AGI Threshold for Medical Deductions
From January 1, 2013 to December 31 2016, taxpayers over the age of 65 (or turning 65 during the tax year) were exempt from the 10 percent rate. A rate of 7.5 percent of their AGI was the threshold for deducting allowable medical expenses through the end of December 2016. However, as of January 1, 2017, the amount of unreimbursed medical expenses now must exceed 10 percent of your AGI for all taxpayers. If you’re unsure if your medical costs are eligible for deduction, it is best to consult with your therapist and a qualified tax professional.
- Fonthill Behavioral Health: Insider’s Guide: 5 Tips for Deducting Mental Health Services from Taxes
- Turbo Tax: Medical Expenses Checklist
- Turbo Tax: Can I Claim Medical Expenses on My Taxes?
- IRS: 2016 Publication 502
- IRS: 2016 Instructions for Schedule A (Form 1040)
- TACA: Internal Revenue Service Revenue Ruling 55 - 261
- H&R Block: Medical Expenses Deduction
- tax time image by Tom Oliveira from Fotolia.com