Any one of the millions of Americans dealing with the soaring costs of routine healthcare or unexpected medical emergencies knows how tough it can be, even with insurance coverage. Fortunately, the IRS gives taxpayers a bit of a break in the form of medical deductions against their federal tax returns. It is true that your unreimbursed medical expenses must exceed a high threshold before being considered eligible for deduction. But, if you’ve had costly medical procedures or expenses that you’ve had to pay out of pocket, then this deduction could result in a substantial reduction of your federal tax liability when it comes time to pay Uncle Sam.
How Much of My Medical Expense Is Deductible?
For tax years 2017 and 2018, you are allowed to deduct any qualifying medical expenses that exceed 7.5 percent of your AGI, or adjusted gross income. Luckily, determining your adjusted gross income is fairly simple. Your AGI is calculated by taking your total taxable income and wages for the year, then subtracting any adjustments. These adjustments depend on your personal tax situation. However, they often include things like contributions to retirement accounts such as a traditional IRA or a 401(k), self-employment tax and alimony paid to a former spouse. Your AGI is important not only for determining how much you get back for medical deductions on taxes, but also which tax credits or deductions you may qualify for.
For example, if your AGI is $100,000, then you can claim only unreimbursed medical deductions that exceed $7,500. Not only can you claim these deductions for yourself, you can also deduct medical expenses you pay for a spouse or qualifying dependent. This 7.5 percent threshold was set to expire in 2016, but with recent tax reforms, it has been extended through the 2018 tax year. Beginning January 1, 2019, eligible medical costs must exceed 10 percent of your AGI in order to be deductible.
How to Claim Medical Deductions
To claim your medical expenses, you must itemize your deductions. You cannot write off medical expenses by taking standard deductions. To itemize, use IRS Form 1040 and include a Schedule A. On line 1 of Schedule A, report the amount of unreimbursed medical expenses you paid, and on line 2 put your adjusted gross income. Your AGI can be taken from line 38 on Form 1040. Next, you need to enter 7.5 percent of your AGI on line 3. On line 4, enter the difference between your medical costs and 7.5 percent of your AGI. The figure you reach for line 4 is the amount of allowable medical deductions you can write off, which in turn determines the amount by which your taxable income is reduced for that year.
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Claiming the Deduction for Other Family Members
While you can claim the medical expenses you incurred for a spouse or relative, you do so differently than when claiming these deductions for yourself. When you write medical expenses off for yourself, you can do so only in the year you paid for the procedure or service, and not the year they were actually provided. For instance, if you scheduled and paid for surgery in 2016, then you write it off for the 2016 tax year, even if the surgery itself was not performed until 2017.
However, for a spouse or qualifying dependent, you can claim the deduction for expenses you paid on their behalf in either the year the services were provided or when services were paid. If your medical deductions, plus any other deductions you can take, do not exceed the standard deduction, then you should not itemize. The IRS website has numerous resources to assist taxpayers with claiming medical deductions and itemizing. Consulting with a qualified tax professional will prove helpful, as well.
- One of the many U.S. tax forms. Wikimedia Commons.