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This article was fact-checked by our editors and Jennifer Samuel, senior product specialist for Credit Karma Tax®. It has been updated for the 2020 tax year.
Medical care can be expensive.
Even when you have insurance, you may still face some medical costs that you have to pay for out of your own pocket.
If you had medical bills during the tax year that weren’t covered by insurance, you may be able to deduct some of those costs on your federal income tax return. But first you’ll need to meet certain qualifications, such as itemizing your deductions and having eligible medical expenses that exceeded 7.5% of your adjusted gross income, or AGI, for the year.
Only certain medical and dental expenses are eligible for the medical expense deduction, however. And even if you have expenses that exceed the threshold, other limitations could prevent you from taking advantage of the tax break.
If you incurred some major medical bills in the current tax year, make sure you understand what you can and can’t deduct, and whether it’s worth it to take this itemized deduction at all.
- Who can take the medical expense deduction?
- What medical expenses qualify for the deduction?
- Which expenses don’t qualify for the deduction?
- How to calculate the medical expense deduction
- 3 other tax-advantaged ways to deal with medical expenses
Who can take the medical expense deduction?
You must itemize your deductions in order to take the medical expense deduction, if you qualify for it. If you take the standard deduction, you won’t be able to take a medical expense deduction. What’s more, you can only deduct the portion of your qualified medical expenses that exceeds the AGI threshold for the tax year.
Keep in mind, though, that even if you have qualified medical expenses that exceed the threshold, it may still not make sense to take the deduction.
Typically, taxpayers choose to itemize deductions when their total deductible expenses exceed the standard deduction for their filing status. Because the standard deductions are higher than in past years, you may find your total itemized deductions are less than your standard deduction.
For example, if you’re married filing jointly, your total itemized deductions — including the medical expense deduction — would need to be greater than the standard deduction for your filing status, which is $24,400 for 2019, in order to get more value than if you were to claim the standard deduction.
Also, certain expenses aren’t eligible for the tax break, which can reduce how much you can claim — or disqualify you entirely.
“I basically consider medical costs the biggest non-deduction tax deduction,” says A.J. Gross, a certified public accountant and president of ALG Tax Solutions. “Most of our clients will not get a deduction unless they had a major medical occurrence.”
What are the standard deductions for 2020 taxes?
Here are the standard deductions for 2020.
- $12,400 for single taxpayers or married couples filing separate tax returns
- $18,650 for people filing as head of household
- $24,800 for married couples filing jointly
There’s an additional standard deduction for taxpayers who are 65 and older or blind.
What medical expenses qualify for the deduction?
Rather than allowing you to add up all your medical and dental expenses for the year, the IRS has specific criteria for what you can and can’t deduct.
Eligible medical expenses include unreimbursed costs for the diagnosis, cure, mitigation, treatment or prevention of a disease, and the costs for treatments affecting any part or function of the body.
Here are some examples of medical and dental expenses that may be deductible.
- Payments you make to doctors, surgeons, dentists and other medical practitioners for qualified expenses
- Prescription medicines or insulin
- X-rays and laboratory services
- Diagnostic tests
- Nursing help
- Hospital care
- Qualified long-term care services
- Smoking cessation programs
- Medical treatment at a center for drug or alcohol addiction
- Eyeglasses or contact lenses
- Hearing aids
- Guide dogs
There are additional expenses that may be deductible.
When to deduct medical expenses
Remember, the deduction is only available for expenses you actually paid in a tax year.
This means that if you had surgery in December 2020 and didn’t pay your bill until January 2021, the expenses are not eligible for deduction on your 2020 tax return. You’ll have to wait until you file your 2021 return (in 2022) to be able to take a deduction for the expense.
Which expenses don’t qualify for the deduction?
Sometimes it’s easier to determine whether a medical expense qualifies for the deduction by using the process of elimination. Although the list of eligible expenses is long, what isn’t eligible is a much shorter list.
Here are some examples of ineligible medical expenses.
- Expenses that are merely beneficial to your overall health, such as vitamins, a gym membership, a weight-loss program or a vacation. However, a weight-loss program may be eligible if it’s for treatment for a specific disease diagnosed by a physician, such as hypertension or heart disease.
- Cosmetic surgery, unless it’s necessary to improve a deformity directly related to a congenital abnormality, a personal injury resulting from an accident or trauma or a disfiguring disease. For example, a face-lift probably wouldn’t be deductible, but cosmetic surgery to correct a facial deformity caused by an accident might be.
- Insurance premiums or other expenses paid by an employer-sponsored health insurance plan, unless the premiums are included in your income on your W-2 form.
- Nonprescription drugs and medicines (except for insulin).
If you’re unsure whether a particular medical bill qualifies for the medical expense deduction, consider using an online tax preparation and filing service. Credit Karma Tax®, which never charges to help you file your federal and single-state tax returns, can alert you if a medical expense you’ve entered into the software may be deductible.
How to calculate the medical expense deduction
To determine whether you qualify for the medical expense deduction and how much you can take, you’ll need to know your AGI. Your AGI is your gross income minus certain adjustments, such as health savings account contributions, individual retirement account contributions and student loan interest.
Once you know your AGI, multiply that number by 7.5%. For example, if your AGI is $100,000, your calculation would be $100,000 x 0.075 = $7,500. Next, tally all your qualifying medical and dental expenses. If your total is $7,500 or less, you won’t have enough deductible expenses to qualify for the medical expense deduction.
If your qualifying medical expenses are more than $7,500, subtract $7,500 from your total expenses to learn the dollar amount you may be able to deduct on your federal tax return. For example, if your total qualifying expenses were $11,000, you may be able to take a medical expense deduction of up to $3,500. Here’s the math: $11,000 (the dollar amount you actually paid) minus $7,500 (7.5% of your AGI) = $3,500.Learn more about adjusted gross income
3 other tax-advantaged ways to deal with medical expenses
Because of the medical expense deduction’s expense floor and an increased standard deduction, you may find it difficult to take advantage of the tax break. Fortunately, there are other ways to leverage health-related expenses to your tax advantage.
Health savings account
A health savings account, or HSA, allows you to contribute a certain dollar amount each year to use specifically for eligible medical expenses. The money you contribute to an HSA is tax-deductible, and withdrawals are tax-free — as long as you use the funds for qualified medical expenses.
But here is the catch: You need to be on a high-deductible health plan to qualify. For 2020, a plan was considered high deductible if the deductible was at least $1,400 for self-only coverage and $2,800 for family coverage, with an out-of-pocket maximum of $6,900 and $13,800, respectively.
In 2020, you can contribute up to $3,550 to an HSA with a self-only health insurance plan or up to $7,100 if you have a family health insurance plan.
What medical expenses can you pay with an HSA?
Generally, you can use an HSA to pay for the same types of expenses that would be included in a medical and dental expense deduction (if you qualified to take one). These can include, but aren’t limited to …
· Over-the-counter drugs your doctor prescribes for you
· Birth control pills prescribed by a doctor
· Medical supplies such as bandages
· Dental visits and certain treatments
· Inpatient treatment for drug addiction
· Eye care such as exams, glasses and contact lenses (needed for medical reasons)
· The costs of buying, training and caring for guide dogs or other service animals that help people with vision, hearing or other physical disabilities
· Lab fees
· Special education for children with learning disabilities (with a doctor’s recommendation)
Flexible spending arrangement
A flexible spending arrangement, or FSA, is an employer-sponsored account that allows you and your employer to contribute pretax dollars through a salary reduction to use for qualified medical expenses.
If your employer offers FSAs, you decide how much of your salary (within limits) you want to defer into the arrangement, and your salary is reduced by that dollar amount. Instead of paying you that money, your employer puts those funds into your FSA, so neither you nor your employer pays federal taxes on that money. You can then request reimbursement from the account to pay for qualified expenses.
Two common types of FSAs are ones to pay for healthcare-related costs, and ones to pay for dependent care costs. However, you can’t use one FSA for both purposes.
Although your FSA doesn’t require that you have a certain type of health insurance plan, you typically need to use most or all of the funds you contribute to it the year you made the contributions. However, in some cases you may have an additional grace period in which to use funds. In 2020, you were allowed to contribute up to $2,750.
Health reimbursement arrangement
A health reimbursement arrangement (commonly referred to as a health reimbursement account) is another type of employer-sponsored account, but it’s different in that it’s funded only by your employer.
Any reimbursements you take from a health reimbursement arrangement for qualified medical expenses are tax-free up to a maximum dollar amount for a given period, which is typically determined by your employer. There is no limit to how much employers can contribute to a health reimbursement account.
The medical expense deduction can help you reduce your tax liability. But because of the deduction’s expense floor, it may be difficult to qualify for the medical expense deduction.
“The increased standard deduction will make it even more difficult to take a deduction for medical costs,” Gross says.
If you have a lot of ongoing medical bills or expect some in the near future, check to see if you qualify for a health savings account, flexible spending arrangement or health reimbursement arrangement. And if you don’t, keep track of your medical expenses and receipts in case you qualify for the medical expense deduction when you file.
Relevant sources: IRS: Topic No. 502 Medical and Dental Expenses | IRS: About Schedule A (Form 1040), Itemized Deductions | IRS: Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans | IRS: IRS Provides Tax Inflation Adjustments for Tax Year 2019 | Tax Cuts and Jobs Act of 2017
Jennifer Samuel, senior tax product specialist for Credit Karma Tax®, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.