Health care in the U.S. is complex. So are our tax laws. Mix them together and it’s no wonder people pull their hair out trying to determine if or how last year’s health care expenses might affect what they owe Uncle Sam. As you’ll see, tax rules can apply differently based on the type of expense, and your eligible health care-related expenses must exceed a certain threshold amount before you can deduct them on your tax return.
The first step is knowing which of your health care expenses you can deduct. Then you’ll need to add up all those eligible expenses to decide if it’s worth it (or even possible).
NOTE: The IRS refers to the money spent on all health care-related services (medical, dental, vision, hearing, mental health, etc.) as “medical expenses.” Also, tax laws often change year to year, and some rules that applied to your 2018 taxes may be different for the 2019 tax year. If in doubt, check with a tax professional or the IRS website.
Know Which Health Care Services Are Tax-Deductible
A general rule of thumb is: If you paid for a health care service (for yourself, your spouse or a legal dependent) in 2019 that the IRS considers an eligible expense, and you paid for it out of your own pocket (in other words, you weren’t reimbursed for it in any way), then the amount you paid is considered a deductible medical expense.
Some examples of tax-deductible health care expenses include:
- Copays and your share of coinsurance for medical, dental, and vision care
- Other unreimbursed medical, dental, vision or hearing services
- Unreimbursed mental health care expenses
- Unreimbursed long-term care expenses (including premiums, with certain limits)
- Unreimbursed prescription drug expenses (including smoking cessation products)
- Eyeglasses, contacts, false teeth, hearing aids not covered by insurance
What else qualifies as tax-deductible?
You might be surprised. The IRS definition of eligible medical expenses is quite broad, allowing you to deduct unreimbursed expenses (with certain limitations) for things like:
- Acupuncture and chiropractic services
- Wheelchairs and other items required for a disability
- Breast pumps and nursing supplies
- Travel and lodging required to receive medical care (up to certain limits)
- Diabetes blood-testing supplies
- Medical/disability-required modifications to your home or car
- Rehab treatment
- Reproductive services
- Service animals
- Sex reassignment surgery
- Wigs for cancer patients, and many others.
What’s not deductible for health Care services?
The IRS does not allow you to deduct the cost of most cosmetic procedures that aren’t medically necessary, non-prescription drugs (except insulin), or general health items (toothpaste, health club dues, non-prescription vitamins, supplements or diet products, etc.).
You can find the complete list of eligible and ineligible expenses on the IRS website.
Are my health care premiums deductible?
Whether your premiums (the amount you pay each month to have insurance) are deductible depends on where you buy your insurance. If you get your health insurance through:
- Your employer: If your share of the premiums comes from before-tax payroll contributions (most do), then you’ve already received a tax deduction, so you can’t “double dip” by also claiming those costs on your tax return.
- COBRA: If you leave your employer-sponsored plan, COBRA allows you to continue the same coverage by paying the full cost yourself. Because you pay COBRA premiums with after-tax dollars out of your pocket, COBRA premiums are tax-deductible.
- Self-employment: The good news here is that you can deduct health care premiums for yourself, your spouse and legal dependents, regardless of whether your overall health care expenses reach the deduction threshold amount (see below).
However, you can’t deduct premiums if you opted out of coverage you were eligible for under an employer’s plan (yours or your spouses). Also, the premiums you deduct can’t exceed the income you earned from your self-employment.
- Individual coverage: If you buy health insurance through the health insurance marketplace (Obamacare) you can deduct your cost for those premiums.
However, you cannot deduct your marketplace premiums if you chose to opt out of coverage available from your or your spouse’s employer. You also can’t deduct the portion of your premiums that are offset by any premium tax credit you may receive.
- Medicare: You can deduct any premiums you pay for Medicare parts B, C, or D, and any Medigap or Medicare Advantage premiums you pay. You can’t deduct your Part A premium if it’s being paid by Social Security.
Is my FSA or HSA tax deductible?
If you contribute to a health care flexible spending account (FSA) or health savings account (HSA) through payroll deductions, those are before-tax contributions, so you can’t also deduct those contributions on your tax return.
Likewise, you can’t deduct any money you spend from your health care FSA or HSA, since you already received a tax break on your contributions. (There is no federal income tax on any interest or investment earnings in an HSA.)
If you have an individual HSA: If your employer doesn’t offer before-tax HSA payroll contributions or if you bought an individual high-deductible health plan (HDHP) and opened an HSA on your own, you can deduct your 2019 HSA contributions up to the annual IRS limit.
See if you have enough expenses to deduct
Now that you’ve identified the expenses you can potentially claim on your taxes, the second part of the health care and taxes equation is determining whether it’s possible (or makes sense) to deduct those expenses.
That’s because for the 2019 tax year, you can only deduct those eligible health care expenses that exceed 7.5% of your Adjusted Gross Income (AGI). Your AGI is all the income you earned for the year, minus adjustments to that income, such as contributions to a retirement account, alimony, tuition, etc.)
Eligible expenses over and above that 7.5% of AGI threshold are deductible. But if your total health care expenses don’t reach the threshold, you can’t deduct any of them.
Say you made $100,000 in 2019 and contributed $5,000 to a 401(k), for an AGI of $95,000. In that case, your threshold for deducting health care expenses would be $7,125 ($95,000 x 7.5%). So if you had $5,000 in eligible health care expenses, you won’t be able to deduct those. If you had $9,000 in health care expenses, you’ll be able to deduct $1,875 ($9,000 – $7,125).
Even if you can deduct, should you?
The standard deduction allows tax filers to reduce their tax liability by a fixed amount without having to itemize their deductions. For the 2019 tax year, the standard deduction is $12,200 for single filers (and married filers filing separately), $24,400 for married filers filing jointly and $18,350 for heads of household.
In most cases, if you don’t have a lot of deductions other than health care (like mortgage interest, real estate taxes, casualty losses, etc.) and if all your deductions will total less than the standard deduction, you’ll be better off taking the standard deduction and not itemizing.
On the other hand, if the total of all your deductions will be more than the standard deduction, then you might do better by itemizing.
When deciding between itemizing and taking the standard deduction, you can count all your eligible health care expenses that exceed the 7.5% of AGI threshold. But the only way to actually deduct those health care expenses is by itemizing.
If you do itemize deductions, remember you’ll need to save receipts and other records that validate those expenses, which holds true for your health care expenses, too. And you should keep that information for a minimum of three (or more) years after you file your tax return.
Get What You Should for Health Care Expenses
When you’ve got a fistful of medical bills, it feels like you should be able to get some tax relief. If you’ve made it this far, hopefully, you have a better sense of the relationship between health care and your taxes and whether you could—or should—try for some of that relief.
Of course, neither health care nor taxes are ever as simple as we think they should be. Thankfully, there are a number of great software programs (free and otherwise) that can do the heavy lifting to help you decide. But if you’re unsure, it’s definitely worth the time to check with a tax professional or contact the IRS for help.
Larry F. Hill
Larry F. Hill is a freelance strategy consultant and writer who helps national and international clients solve communication and marketing challenges with original concepts and compelling content on a variety of subjects. Larry is a regular contributor to the RxSaver blog.
The information on this site is generalized and is not medical advice. It is intended to supplement, not substitute for, the expertise and judgment of your healthcare professional. Always seek the advice of your healthcare professional with any questions you may have regarding a medical condition. Never disregard seeking advice or delay in seeking treatment because of something you have read on our site. RxSaver makes no warranty as to the accuracy, reliability or completeness of this information.
If you are in crisis or you think you may have a medical emergency, call your doctor or 911 immediately.
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