What Medical and Dental Expenses Are Tax Deductible?

What Medical and Dental Expenses Are Tax Deductible?

The IRS allows taxpayers to deduct qualified medical and dental expenses on their tax returns. For some people, this amounts to a significant reduction in their total tax bill, while for others, it is less important than alternative exemptions, deductions and credits. Not every expense qualifies for this exemption, so it’s important to check with a tax professional before claiming healthcare expenses as deductions.

Working Americans pay trillions of dollars a year in taxes, largely through business and personal income tax. Each year, the majority of taxpayers are required to file returns stating how much money they earned during the previous year, what reductions they may be qualified to claim and how much they owe in total taxes. The complexity of the U.S. tax code makes it difficult for some taxpayers to find all of the savings they may be entitled to, but the medical and dental expense deductions on their own can potentially save some taxpayers thousands of dollars a year.

How Do Tax Deductions Work?

The IRS requires most taxpayers to file an income and expense declaration for each tax year. This form, which is most often the 1040 or 1040EZ, has space to report income from employment and other sources. Certain life conditions and events can be used to reduce the taxes you would otherwise owe for a tax year. Of these, the most important for most taxpayers are exemptions, credits and deductions.

Each of these reductions works in a different way, and some are more valuable to most taxpayers than others. Exemptions act to reduce the countable income you had for a year. Thus, a taxpayer who earned $50,000 in a given year, but who qualifies for a $10,000 exemption, may effectively report an income of $40,000, which generally reduces the total taxable income and may bump the filer into a lower tax bracket.

Credits are similar to exemptions, but they are applied after income is counted and directly reduce the calculated taxes owed. Thus, if you count up your income for a year, minus exemptions, and work out that you owe $5,000 in taxes, you can directly reduce the amount you owe with credits. In this case, a $1,600 credit would reduce the $5,000 you owe to $3,400.

Deductions are somewhat more complicated than the other tax benefits. Deductions are applied to your tax bill and prorated according to your effective tax rate. Thus, a $1,000 deduction for someone in the 28% tax bracket counts as a $280 credit. If you are in the 15% bracket, the same $1,000 deduction counts as a $150 credit. Typically, deductions are provided for business and personal expenses the government wants to encourage or reduce the burden of.

What Counts as a Qualified Medical or Dental Expense?

Certain medical and dental expenses potentially qualify for a deduction. These are known as qualified deductions, and claiming them can effectively convert tax liabilities into a subsidy for healthcare expenses. Not all medical or dental expenses count as qualified, however.

Common medical and dental expenses you may be able to claim a deduction for include:

• Fees paid to licensed doctors, dentists, other medical professionals (such as chiropractors and psychiatrists) and costs paid directly to non-traditional practitioners, such as acupuncturists
• Payments you made for inpatient hospital or nursing home care, though with exceptions for the non-medical parts of your bill, such as food and entertainment
• Alcohol and drug addiction treatment, inpatient and outpatient, as well as smoking cessation and nicotine replacement aids
• Treatments related to weight loss, but only in relation to doctor-diagnosed obesity or other disorders; not for regular club memberships or diet foods
• Prescription drugs of almost all types, provided they are self-administered and not delivered as part of a medical procedure, such as surgical anesthetics
• Transportation costs related to chronic illness of the taxpayer or the taxpayer’s spouse, provided the transportation is medically necessary
• Dentures, partials and other dental appliances; reading and prescription eyeglasses, contact lenses and hearing aids; crutches, wheelchairs and other mobility devices; and costs associated with service animals, such as guide dogs and comfort pets for people diagnosed with a condition that requires them
• Miscellaneous travel expenses, such as lodging and food, incurred during medical transportation, provided the primary purpose of the trip was medical, and the time or distances involved made the non-transportation expenses difficult to avoid, including overnight hotel accommodations and tolls paid during the trip

In addition to these direct costs associated with medical and dental care, you may also qualify for a deduction for the money you paid into a qualifying insurance policy. If you are not self-employed, you may only claim the portion of your health and dental insurance not paid by your employer. Note that these expenses may only be eligible for the deduction if the value of them is included as income on your employer-issued W-2 Wage and Tax Statement. These would be included in Box 1 of the W-2.

Is the Medical and Dental Expenses Deduction Worth Claiming?

Only a qualified tax professional can give you a definitive answer about whether you should claim a deduction on your taxes. For people who earn enough to itemize their deductions, the relatively high cost of medical services might make the deduction very attractive. For taxpayers with lower income, simply skipping the medical and dental expense reporting and claiming the standard deduction might work out better. Ask the person who helps you file your taxes which option is best for you.

The Self-Employed Health Insurance Deduction

If you're self-employed, you might be eligible to take another deduction on your taxes for healthcare expenses. The self-employed health insurance deduction is, despite its name, effectively an adjustment, rather than a deduction in the traditional sense. This benefit may be taken in whole or in part, and it relates to the total amount you paid for health insurance as a self-employed business owner for yourself, your spouse and any children you have aged 27 and under, regardless of whether they are your dependents. Note that, as an adjustment, this benefit may be taken alongside the standard deduction. Any unused portion of a year’s adjustment may be shifted over as an itemized deduction, though the IRS may ask for documentation of your expenses.