Medical and Dental Expense Tax Deductions
If you itemize your deductions on Schedule A of Form 1040, you may be able to deduct expenses you paid that year for medical care (including dental) for yourself, your spouse, and your dependents. You may deduct only the amount by which your total medical care expenses for the year exceed 10% of your adjusted gross income.
Deductions are allowed only for expenses paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription, except for insulin.
Items that are Deductible as Medical Expenses:
IRS medical expenses include fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, and psychologists. Also included are payments for hospital services, qualified long-term care services, nursing services, and laboratory fees. Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction are also deductible medical expenses. You may include amounts you paid for participating in a smoking-cessation program and for drugs prescribed to alleviate nicotine withdrawal. However, you may not deduct amounts paid for nicotine gum and nicotine patches, which do not require a prescription.
You may deduct the cost of participating in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician. You may not deduct the cost of purchasing diet food items. In addition, you may include expenses for admission and transportation to a medical conference relating to the chronic disease of either yourself, your spouse, or your dependent (if the costs are primarily for and essential to the medical care). However, you may not deduct the costs for meals and lodging while attending the medical conference.
The cost of items such as false teeth, prescription eyeglasses or contact lenses, laser eye surgery, hearing aids, crutches, wheelchairs, and guide dogs for the blind or deaf are deductible medical expenses.
Some Things You May Not Deduct:
You may not deduct funeral or burial expenses, health club dues, over-the-counter medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery.
Some Related Costs and Expenses That Are Deductible:
Transportation costs primarily for and essential to medical care qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance can be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for the current tax year. With either of these methods of calculating your medical transportation expense, you get to then add on tolls and parking fees as well.
You may include in medical expenses the incidental cost of meals and lodging charged by the hospital or similar institution if your main reason for being there is to receive medical care.
Other Rules and Limitations:
You can only include the medical expenses you paid during the year, regardless of when the services were provided. Your total medical expenses for the year must be reduced by any reimbursement. It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.
You may include qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a multiple support agreement. If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child.
You may deduct only the amount by which your total medical care expenses for the year exceed 10% of your adjusted gross income. You do this calculation on Schedule A of Form 1040 in computing the amount deductible.
Medical expenses include insurance premiums you paid for accident and health or qualified long-term care insurance. You may not deduct insurance premiums for life insurance, for policies providing for loss of wages because of illness or injury, or policies that pay you a guaranteed amount each week for a sickness. In addition, the deduction for a qualified long-term care insurance policy’s premium is limited. Refer to Publication 502, Medical and Dental Expenses.
Six Most Tax-Impacting Changes From the Landmark ACA (Obamacare) Health Care Reform Act
1. Small businesses with fewer than 25 full-time equivalent employees, with average annual wages below $50,000, can get tax credits (as adjusted for inflation beginning in 2014) to help pay for employee premiums. These tax credits are retroactive back to 2010 so you can still claim your health insurance tax credit for any year since 2010. You must file Form 8941 to claim your Tax Credit.
2. Large companies (50 or more workers) are now liable for an additional tax if they do not provide minimum essential coverage. Even if they provide minimum essential coverage, they may be subject to a penalty if any employees received premium assistance or cost-sharing to purchase health insurance through an insurance exchange.
3. Individuals may now be subject to an individual responsibility penalty for failure to maintain minimum essential coverage. Lower-income individuals may qualify for a refundable premium assistance tax credit.
4. Medicare tax is now assessed on investment income for high-income individuals or families. Investment income includes interest, dividends, capital gains, rental income, royalties, and passive business income. Tax planning tip: The definition of “investment” does not include tax-exempt bonds.
5. For self-employed, the Medicare part A tax rate itself on earned income has increased from 2.9 to 3.8 percent.
6. Small businesses making over $250,000 in profit must pay a 0.9% increase on the current Medicare part A tax. This extra 0.9% tax is split (.45% each) between the employer and employees making over $200,000 individual ($250,000 family).
Self-Employed Health Insurance Deduction
If you are self-employed and have a net profit for the year, or if you are a partner in a partnership or a shareholder in an S corporation, you may be able to deduct, as an adjustment to income, 100% of the amount you pay for health insurance for yourself and your spouse and dependents. You cannot take the special 100% deduction for any month in which you are eligible to participate in any subsidized health plan maintained by your employer or your spouse’s employer. Find more information on this deduction in IRS pub 502.