Every human being will likely get sick at some point. Those who are lucky will get treated, get well and pay their bills without a struggle. But unfortunately, that is not usually the case for many Americans.
Based on current research, medical bills are the biggest type of debt that people are dealing with. In fact, 66.5 percent of those who declare bankruptcy will do so because of medical-related expenses.
Therefore, it pays to learn how to get some of your taxes back on medical expenses. Since you cannot fully avoid paying medical bills, you have the right to reduce your tax liability to compensate for that loss of income if you can.
What Percent of Medical Expenses Are Tax-Deductible?
Not all your medical expenses are tax-deductible, which is something you should consider before performing your tax liability calculations.
Based on the Internal Revenue Service (IRS) rules, you can only deduct the medical and dental expenses that exceed 7.5 percent of your adjusted gross income (AGI). If your expenses fall below that category, you cannot deduct them. However, you can claim not just the expenses you incur in your treatment, but also those you pay for your spouse and dependent.
Remember, you can only claim those deductions for allowable medical expenses. Some treatment bills cannot be claimed on your taxes. Generally, accepted medical expenses are those that prevent or alleviate mental or physical disability or illness.
Deducting Medical Expenses When Claiming the Standard Deduction
How much can you deduct for medical expenses when you claim standard deductions? Unfortunately, you cannot claim anything. To enjoy medical expenses deductions, you must itemize your deductions.
However, it does not always make sense for you to do so. To determine whether it is worth itemizing your deductions, you need to consider your marginal tax rate, the standard deduction for the tax year you are filing returns and the total deductible medical expenses you are claiming.
If your medical bill plus your other expenses are less than your standard deduction and they won’t change your marginal tax rate, it makes no sense to itemize. In that case, you should stick to claiming the standard deduction and be done with it.
Currently, the standard deduction for the tax year 2021 is $12,550 for individuals, $18,800 for heads of households and $25,100 for couples filing jointly.
Itemizing Medical Expenses
To claim medical expenses beyond 7.5 percent of your AGI, you must itemize your expenses. That means keeping an accurate records of what you spend and proof of payments. When recording your medical expenses, you will use the IRS Schedule A (Form 1040). Also, you must fill in Form 1040 or 1040-SR.
When someone dies, any medical and dental expenses they paid should be included in their tax return. But if the decedent had filed a return that did not include medical expenses, you can use Form 1040-X to make amendments.
If your dependent or spouse died and you paid their medical expenses prior to their death, you can also claim them on your Schedule A when filing your taxes.
The Health Coverage Tax Credit
The health coverage tax credit (HCTC) is a tax credit available to the 2021 recipients of trade adjustment assistance (TAA), alternative TAA (ATAA) and reemployment TAA (RTAA). It is meant to subsidize most of the cost of qualified health insurance and is refundable.
HCTC is also available to payees of the Pension Benefit Guaranty Corporation (PBGC). Also, the credit is available to qualifying family members of the eligible recipients and payees who may have passed away or finalized a divorce with you.
HCTC is available until the end of 2021, which means you can claim it for the 2021 tax year. But you must elect it to receive the benefit, file the IRS Form 8885 and attach it to your Form 1040.
How to Figure Out How Much You Get Back
Suppose you have an AGI of $80,000 and incurred huge medical expenses of $30,000 for the tax year 2021. Based on the 7.5 percent IRS rule, you can only deduct expenses in excess of $6,000. Therefore, you can deduct $30,000-$6,000, which equals $24,000.
If you were filing as single, the standard deduction limit of $12,550 would be less than the medical expenses you can deduct. In your case, it would make sense to itemize and claim the $24,000 deduction on your taxes. By doing so, your AGI would be reduced significantly, which would decrease your overall tax liability.
Read More: What Dental Work Is Tax Deductible?
I have been a freelance writer since 2011. When I am not writing, I enjoy reading, watching cooking and lifestyle shows, and fantasizing about world travels.