The Medical Expense Tax Deduction

This tax deduction got better under the new legislation

Dentist examining woman's mouth
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Medical expenses are one of those tax deductions that have always been a bit complicated to calculate, and the rules seem to change every few years. Most taxpayers could deduct medical expenses that exceeded 10 percent of their adjusted gross incomes from 2013 through 2016. Before that, these expenses were deductible when they exceeded 7.5 percent of a taxpayer's adjusted gross income. Then along came the Tax Cuts and Jobs Act in December 2017.

The Effect of Tax Cuts and Jobs Act 

The threshold for deductible medical expenses was supposed to remain at 10 percent, but the TCJA tweaked that and in a favorable way. Not only does the TCJA drop the threshold back to 7.5 percent, but it makes the change retroactive to 2017. You can claim the deduction for your medical expenses that exceed just 7.5 percent of your AGI on your 2017 return. 

Unfortunately, this change only applies to tax years 2017 and 2018. Beginning in 2019, the threshold is slated to go back up to 10 percent. 

The AGI Threshold 

You can calculate the 7.5 percent rule by tallying up all your medical expenses, then subtracting 7.5 percent of your adjusted gross income. If your AGI—which can be found on line 37 of Form 1040—is $65,000, your threshold is $4,875 or 7.5 percent of that. If you have $10,000 in qualified medical expenses, your deduction is $5,125, or the balance over the $4,875 threshold.

Compare this to 2016's 10-percent rule, scheduled to come back in 2019: Your deduction would be just $3,500 or the balance over a $6,500 threshold. 

Amounts under the percent floor are not deductible. 

You Have to Itemize 

Of course, there are multiple other rules that apply to the medical expense tax deduction.

First, you have to itemize your deductions to claim it, which means that you must complete and file Schedule A with your return. If you're eligible to claim several other itemized deductions on Schedule A as well, this could be worth your while.

You'll want to claim the greater of your total itemized deductions or the standard deduction for your filing status. You can't claim the standard deduction and itemize, too, and this rule will have a much greater impact in 2018 because the TCJA also nearly doubles standard deductions for all taxpayers beginning in 2018.

For single taxpayers, it increases from $6,350 to $12,000. For head of household filers, it goes up from $9,350 to $18,000. If you're married and filing a joint return with your spouse, it jumps from $12,700 to $24,000, although if you and your spouse file separate returns, it's just $12,000. If you don't have more than these amounts in total itemized deductions, you'll pay taxes on more income than you have to if you don't claim the standard deduction instead.

If it does turn out that itemizing is in your best interest in 2017 or 2018, medical expenses can be deducted on line 1 of Schedule A. Lines 2 and 3 of Schedule A calculate the limitation on medical expenses, and line 4 shows the deductible portion of what you paid.

Who Received Treatment?

You can deduct medical expenses paid for yourself, your spouse, and your dependents. You might also be able to deduct expenses for someone who didn't qualify as your dependent but would have except for the following circumstances, according to the Instructions for Schedule A published by the IRS.

  • Your child whom you do not claim as a dependent because of the rules for children of divorced or separated parents.
  • Any person you could have claimed as a dependent on your return except that person received $3,900 or more of gross income or filed a joint return.
  • Any person you could have claimed as a dependent except that you or your spouse if filing jointly can be claimed as a dependent on someone else's return.

Special Rule for Dependents of Divorced or Separated Parents

A taxpayer can deduct medical expenses for his children even if the child's other parent to claims the child as a dependent.

In this situation, each parent can deduct the medical expenses he or she paid on behalf of the child. The parent who does not claim the dependent can still deduct the child's medical expenses under the special rule for children of separated parents, and the other parent can deduct the child's medical expenses they paid under the general rule that permits taxpayers to deduct medical expenses for themselves and their dependents.

Special Rule for Non-Dependents 

Taxpayers can also deduct medical expenses they paid for persons who would otherwise have qualified as their dependents except they earned more than the personal exemption amount for that tax year. The IRS gives the following example of this special rule:

"You provided over half of your mother's support but cannot claim her as a dependent because she received wages of at least $4,050 in 2017. You can include on line 1 any medical and dental expenses you paid in 2017 for your mother."

​While the mother in this example did earn more than the personal exemption amount, the filer was still able to claim medical or dental expenses that he had paid for her by reporting those figures on his Schedule A. 

Only Out-of-Pocket, After-Tax Expenses are Included 

Only medical expenses that are not reimbursed by insurance are included in the medical expense deduction. For example, if a prescription medication costs $50 and you have a $30 copay while your insurance company pays the other $20, you can deduct only the $30 that you personally paid.

Similarly, any medical expenses paid using pretax dollars from a flexible spending account, a health savings account or a health reimbursement arrangement are not included in the itemized deduction for medical expenses.

What Types of Costs Can Be Deducted? 

According to Internal Revenue Code section 213(d)(1), the expense must satisfy one of the following conditions to be tax-deductible. It must be: 

  • Related to the diagnosis, cure, mitigation, treatment, or prevention of disease
  • Treatment that affects any structure or function of the body
  • Transportation to and from medical care,
  • Long-term care services, or
  • Insurance for medical care or long-term care

"Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness," the IRS states in Publication 502. However, "they do not include expenses that are merely beneficial to general health, such as vitamins or a vacation." Treatments and prescriptions provided by physicians, surgeons, dentists, chiropractors, psychologists, psychiatrists, and similar medical professionals can be deducted.

Special Rules for Deducting Health Insurance 

Health insurance premiums count as medical expenses for purposes of the deduction, but they're subject to certain rules.

Individuals can deduct premiums for health, dental, and vision care insurance, but only if those premiums were paid using after-tax dollars. Persons who have group insurance through their employer usually pay these premiums with pre-tax dollars.

Medicare Part A premiums can be deducted if a taxpayer is not covered under Social Security and is voluntarily enrolled in Medicare Part A. Medicare Part B premiums and Medigap premiums can be deducted. Medicare Part D prescription drug insurance premiums can be deducted.

Special Rules for Medical-Related Transportation

You can deduct the cost of transportation to and from a healthcare facility if the transportation is "primarily for, and essential to, medical care," according to the IRS in Publication 502. The following expenses can be included in the cost of medical-related transportation:

  • Bus, taxi, train, or plane fares or ambulance service
  • Transportation expenses of a parent who must go with a child who needs medical care
  • Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and
  • Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment.

If you travel by car, you can deduct the miles using the standard mileage rate for medical purposes: 17 cents per mile in 2017, and 18 cents per mile in 2018. You can add the cost of parking and road tolls to this rate. 

When to Deduct Medical Expenses

You can only deduct medical expenses in the year you paid them, although payment can be by cash, check, or credit card. This is the case even if medical services were provided in a different year, such as if you underwent treatment in December 2016 but paid the bill in January 2017. You would then claim the deduction on your 2017 tax return.