If you are a high healthcare user, your medical expenses may be a financial concern. If you itemize deductions on your tax return, the IRS allows a medical tax deduction for qualified medical expenses when they exceed 7.5% of your adjusted gross income (AGI), which is your income minus any adjustments. The 7.5% threshold has varied over the years but was made permanent by the Consolidated Appropriations Act. Although taking this deduction requires that you track and itemize allowable medical expenses, it may provide enough tax savings to do so.
Your income is $100,000 a year and your itemized medical deductions total $20,000. 7.5% of your AGI is $7,500. Thus, your medical tax deduction will be $12,500.
Understanding Standard Deduction vs. Medical Tax Deduction
It might be not worth the extra work for a medical tax deduction if your medical expenses are moderate. Instead, you may take the standard deduction which is the amount that most tax filers may deduct from their income to reduce their tax bill if you do not itemize your deductions. For tax returns filed in 2023, the standard deduction for single filers is $12,950 and for joint filers, $25,900.
The medical tax deduction is worth considering for any individual or [family unit](https://www.irs.gov/taxtopics/tc502#:~:text=If you itemize your deductions for a taxable year on Schedule A (Form 1040)%2C Itemized Deductions%2C you may be able to deduct expenses you paid that year for medical and dental care for yourself%2C your spouse%2C and your dependents.) who has large, unreimbursed medical expenses that exceed 7.5% of their adjusted gross income, even if they might not typically itemize their tax deductions. Aside from everyday costs like doctor’s visits, prescription copays, and health insurance premiums, you may deduct medical expenses such as wheelchairs, home improvements for increased accessibility, lead-based paint removal, and more. For a full list, check the IRS’s website here.
How to Itemize Your Medical Expenses
Keep your receipts and document the following:
- Date of transaction
- Description of items and the amount you paid
- Entity you paid
- Reason for care
During tax season, you’ll calculate your AGI on Schedule 1 on your 1040 tax return. You will need to know your filing status, total medical expenses, the year your expenses were accrued, what portion of the expenses were reimbursed (i.e., the portion covered by insurance), and AGI. You may then add up your medical expenses and calculate your medical tax deduction in Schedule A in your 1040 tax return. You can get an estimate of what you’re able to deduct with the IRS calculator.
State Returns and Alternative Options
Your medical expenses may not be high enough to be worth deducting on your federal tax returns, but individual states have their own rules. Some states let residents deduct qualified medical expenses on top of their standard tax deduction. States such as New Mexico and Arizona allow for all medical expenses to be deducted. Other states like California and Texas abide by the federal threshold.
Even with all this information, you may still want an expert's help to ensure you complete your medical tax deductions correctly. One way to get this kind of personalized help and make the most of your medical tax deductions is through a Caribou HealthPlanning Analysis.
Learn More:
The Medical Expense Tax Deduction for Tax Year 2021 | The Balance
Last Revised March 1st, 2023
