Are Medical Expenses Tax Deductible?

Hi, everyone! My name is Jenna and I’m the newest addition to the TaxFirm.com team! I’ll be writing on this blog periodically regarding various tax topics, hopefully to make understanding what we do a little easier for you.

Out of pocket medical expenses can be expensive and can really take a toll on taxpayers who encounter unforeseen emergencies and are not fully covered by insurance. As the law stands now, the Internal Revenue Service (IRS) grants some relief by allowing taxpayers to deduct these expenses when they are significant. To take advantage of this opportunity, you should know how to claim the deduction and what counts as a medical expense.

The IRS allows you to deduct qualified medical expenses that exceed 10% of your adjusted gross income (AGI) for the year. Your AGI is your gross income after above-the-line deductions (such as an IRA deduction, student loan interest, etc). In other words, if your medical expenses are more than 10% of your income after some above-line-deductions, then the IRS allows you to deduct medical expenses exceeding the 10% threshold.

How can you deduct your expenses? By itemizing your deductions. [Itemized deductions: an “a la carte” option where you list specific deductions, such as mortgage interest, medical expenses, state and local taxes, and unreimbursed business expenses, whereas a standard deductions is a flat amount based on your filing status.] To do so, you will need to fill out a Schedule A to attach to your 1040 form (as well as your receipts and documents).

The next question: how do I know what is deductible? Aside from your preparer telling you, you can refer to this post! Essentially, any expenses you are reimbursed for (whether it is by your insurance or employer) are not deductible. The IRS also generally doesn’t allow cosmetic procedures, or other purchases for general health (such as toothpaste, vitamins, gym memberships, etc.) You also cannot deduct medical expenses for a different tax year, over-the-counter medicine, or the cost of non-prescription drugs (except insulin). However, there are plenty of medical expenses which are deductible, such as preventative care, treatment, and vision and dental care. Prescription drugs and appliances (such as glasses, contacts, dentures, and hearing aids) are deductible, as are visits to psychologists and psychiatrists.

Now deducting for state taxes (New Jersey in this case) is a little bit different. The majority of the deductions allowed for federal is also allowed for New Jersey; however, the biggest difference between the two is that medical expenses exceeding 2% of your gross income are deductible for the state level. Again with the state, un-reimbursed expenses are deductible, but (on the state level) they must be either the taxpayer’s, spouse’s (or civil union partner), or dependent’s to qualify.

What is considered deductible is definitely a tough thing to decipher, and hopefully reading this helped shed some light on any confusion you may have.

 

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