Tax Deductions For Medical Expenses & Health Insurance
Federal Tax Breaks to Help With the Costs of Medical Care & Health Insurance Premiums
The cost of health insurance and medical expenses can be very high, especially these days, but you may have the option of deducting them on your tax return.
This article discusses federal tax breaks for medical expenses and health insurance, based on information from IRS publications, notices, and news releases.
Tax Deductions for Medical Expenses
If you itemize your deductions on Schedule A (Form 1040), you may be able to deduct expenses you paid that year for medical and dental care for yourself, your spouse, and your dependents.
You can only include the medical expenses you paid during the year; and you can only deduct the amount of your total medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI). You can calculate the amount you’re allowed to deduct on Schedule A (Form 1040).
According to the IRS, medical care expenses can include: payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.
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Deductible medical expenses may include but are not limited to the following:
- Payments of fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners
- Payments for inpatient hospital care or residential nursing home care, if the availability of medical care is the principal reason for being in the nursing home, including the cost of meals and lodging charged by the hospital or nursing home – however, if the availability of medical care isn’t the principal reason for residence in the nursing home, the deduction is limited to that part of the cost that’s for medical care
- Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction; or for participation in a smoking-cessation program and for drugs to alleviate nicotine withdrawal that require a prescription
- Payments to participate in a weight-loss program for a specific disease or diseases diagnosed by a physician, including obesity, but not ordinarily payments for diet food items or the payment of health club dues
- Payments for insulin and for drugs that require a prescription for its use by an individual
- Payments made for admission and transportation to a medical conference relating to a chronic illness of you, your spouse, or your dependent (if the costs are primarily for and essential to necessary medical care) – however, you may not deduct the costs for meals and lodging while attending the medical conference
- Payments for false teeth, reading or prescription eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, and for a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities
- Payments for transportation primarily for and essential to medical care that qualify as medical expenses (such as payments of the actual fare for a taxi, bus, train, ambulance, or for transportation by personal car); the amount of your actual out-of-pocket expenses such as for gas and oil; or the amount of the standard mileage rate for medical expenses, plus the cost of tolls and parking
Tax-deductible medical expenses may also include payments for insurance premiums you paid for policies that cover medical care or for a qualified long-term care insurance policy covering qualified long-term care services. However, if you’re an employee, do not include in medical expenses the portion of your premiums treated as paid by your employer. Employer-sponsored premiums paid under a premium conversion plan, cafeteria plan, or any other medical and dental expenses paid by the plan are not deductible unless the premiums are included in box 1 of your Form W-2 (Wage and Tax Statement).
The IRS does not allow you to deduct funeral or burial expenses, nonprescription medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery. Additionally, you cannot deduct amounts paid for nicotine gum and nicotine patches that don’t require a prescription.
Note that you must reduce your total deductible medical expenses for the year by any reimbursement of deductible medical expenses, and by expenses used when figuring other credits or deductions. This is true whether you receive the reimbursement directly or it’s paid on your behalf to the doctor, hospital, or other medical provider.
For more information, see IRS Publication 502 (Medical and Dental Expenses).
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Tax Deductions for Health Insurance
There are a few different tax breaks for health insurance costs, but you must qualify in order to claim these tax benefits.
Self-Employed Health Insurance Deduction
If you’re self-employed and have a net profit for the year, you may be eligible for the Self-Employed Health Insurance Deduction. This is an adjustment to income (rather than an itemized deduction) for premiums you paid on a health insurance policy covering medical care – including a qualified long-term care insurance policy for yourself, your spouse, and dependents. The policy can also cover your child who is under the age of 27 at the end of 2020 even if the child wasn’t your dependent. If you don’t claim 100% of your paid premiums, you can include the remainder with your other medical expenses as an itemized deduction on Schedule A (Form 1040). For more information, see Chapter 6 of IRS Publication 535 (Business Expenses) for eligibility information.
Premium Tax Credit (PTC)
The Premium Tax Credit is a federal credit for certain people who enroll, or whose family member enrolls, in a qualified health plan offered through a Marketplace. The tax credit provides financial assistance to pay the premiums for the qualified health plan by reducing the amount of tax you owe, giving you a tax refund, or increasing your refund amount. You must file Form 8962 (Premium Tax Credit) to compute and claim the PTC on your tax return. For more information, see IRS Publication 974 (Premium Tax Credit).
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