Internal Revenue Service (IRS) Publication 502, titled "Medical Expenses," provides descriptions of the types and amounts of deductible medical expenses. In general, you can deduct premium payments for an individual policy, costs associated with medically necessary home improvements and any expenses you paid for medical care or treatment of an illness or injury.
You are permitted to deduct 7.5 percent of the amount of your expenses which exceed your annual gross income (AGI). To determine the minimum allowable amount, multiply your AGI by .075. The result is what you must surpass to be eligible to itemize your deductions. For example, if you earn $40,000 in a year: 40,000 x .075 = $3,000. If you do not have at least $3,000 of medical expenses, you cannot deduct them.
You must subtract the amount of any reimbursement made by an insurance company from your expenses. It is irrelevant whether you, your physician, a hospital or another provider received the reimbursement. For example, if you paid $100.00 for crutches, but receive a $25.00 reimbursement for them from your insurance company, you can only deduct $75.00.
Claiming a Deduction
You can only claim medical expenses by itemizing them on Form 1040, Schedule A. If you deduct contributions to health savings accounts, you will need to complete Form 8889 for IRS Form 1040 or 1040NR.Your expenses must have been incurred within the last calendar year by you, your spouse or any family or child dependent you claim on your return.
Types of Deductible Medical Expenses
Deductible medical expenses fall within three main categories: diagnosis and treatment costs, home improvements and health savings account contributions. Specific rules for each type of deductible medical expense are explained in Tax Topic 502, titled "Medical and Dental Expenses."
Diagnosis and Treatment Costs
You can deduct any expenses related to diagnosing, treating and preventing a medical condition or mental illness. These costs are deductible regardless of whether you or your spouse is a member of an employer-provided group health insurance plan. It includes the costs of:
- Payments to doctors, nurses, hospitals or long-term care facilities
- Participating in a weight loss or alcohol treatment program
- Prescription medications
- Diagnostic tests
- Ambulance transportation
- Post-mastectomy breast reconstruction surgery
- Psychiatric inpatient or outpatient facility treatment
- Some fertility treatments
Non-deductible expenses include those incurred from a funeral, cosmetic surgery, childcare for a normal, healthy child, health club dues, dancing or swimming lessons, teeth whitening, maternity clothes or household help by someone other than a nurse, such as a cleaning person.
Medical Supplies or Equipment
You can deduct the cost of any medical equipment purchased for an illness or injury. This deduction includes the costs of:
- False teeth
- Guide Dogs (including their veterinary bills)
- Prescription eyeglasses or contact lenses
- Prescription splints or other support systems
- Breast pumps
- Pregnancy tests
Deductible expenses do not include over-the-counter medications, toiletries or cosmetics. Publication 502 contains a comprehensive list of deductible medical supplies. The publication also explains the specific qualities the equipment must have to be deductible.
Medical Insurance Premium Payments
If you or your spouse pay premiums for an individual insurance policy and do not have the option of joining an employer-provided plan, you can deduct the amount of your premium payments. Self-employed individuals can also deduct these expenses.
Medical Home Improvements
If you altered or installed new equipment in your home for medical purposes, you can deduct a portion or entirety of the cost. "Medical purposes" include making a home handicapped accessible or improving the quality of air, paint or another aspect of the home to accommodate a resident's illness. This deduction only applies to home improvements made to your main residence. Examples of deductible improvements include:
- Installation of wheelchair ramps
- Widening doorways
- Lowering countertops
- Changing locks or door handles for handicapped accessibility
- Installing lifts
- Grading landscaping for stability
- Adding handrails
The IRS only allows you to deduct a "reasonable amount." They do not, however, identify what they consider "reasonable." In general, if you paid what someone else in your neighborhood would have paid, including service charges and other similar fees, you can deduct the amount. However, you must subtract any increase in value to your home the improvement caused.
You claim the deduction on the Capital Expenses section of Worksheet A. In this section you identify the value of the improvement and the value of your home before and after the improvement. Based on this information, you calculate how much you can deduct. You then transfer this amount onto your tax return.
Health Savings Account Deductions
You can deduct contributions or subtract the amount of the contribution from your AGI made to a health savings account, high deductible health plan, Archer Medical Savings Account or flexible spending account. You can also deduct any contributions your employer makes to a health reimbursement arrangement on your behalf.
- Health Savings Account (HSA): These accounts are tax-exempt and managed by a trustee. You can deduct any amount you contribute to your HAS. You can also subtract any of your employer's contributions to it from your AGI.
- Archer Medical Savings Account (MSA): These accounts consist of money you contribute for your future, anticipated medical expenses. You can deduct the amount you contribute.
- Flexible Spending Account (FSA): These accounts are established by voluntary, pre-tax dollars subtracted from your paycheck. You can exclude the amount of any contributions from your AGI.
- Health Reimbursement Arrangements (HRA): These accounts are established by your employer to reimburse you for medical expenses not covered by your insurance company or which you otherwise incur. You can exclude any contributions to it from your AGI.
Deducting Your Medical Expenses
Review Publication 502 prior to deducting a medical expense. Seek legal or financial assistance if you are unsure how to properly claim these deductions on your tax return.