Medical Expenses - Itemized Deductions
If you itemize your deductions, you may be able to deduct medical expenses. You can deduct the amount that is greater than 10% (7.5% if you are age 65 or older) of your adjusted gross income. Generally, you are allowed to deduct unreimbursed medical, eye care, and dental expenses. You cannot include the cost of unnecessary cosmetic surgery that is solely for the purpose of improving appearance. Advance payments are not deductible until the service is rendered.
You can generally include medical expenses you pay for yourself as well as those you pay for someone who was your spouse or dependent. A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met:
- The person was a qualifying child or qualifying relative.
- The person was a U.S. citizen or national, or a resident of the United States, Canada, or Mexico.
You can include medical expenses that you paid for any person who meets these requirements even if you cannot claim an exemption for that person on your tax return. To include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses. For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Under most circumstances, each parent can include the medical expenses they pay for the child, unless the child's exemption is being claimed under a multiple support agreement. You can also claim the medical expenses you paid for a parent who would be a dependent except their taxable income is greater than $4,000 and/or they filed a joint tax return.
Medical Expenses - What Is Deductible?
Deductible medical expenses include expenses for legal abortion, acupuncture, inpatient treatment for alcoholism, transportation to and from Alcoholics Anonymous Club meetings, ambulance service, an artificial limb, artificial teeth, chiropractor fees, Christian Science Practitioner fees, contact lenses, crutches, dental expenses, inpatient treatment at a drug rehabilitation center, eyeglasses, eye surgery including surgery to correct vision, some fertility enhancement, purchase and care of a guide dog, hearing aids, hospital expenses, health insurance premiums not paid with pre-tax dollars, laboratory fees, lead-based paint removal, legal fees needed to authorize treatment for mental illness, the portion of life-care or advance payment that you pay to a retirement home that is for medical care, lodging up to $50 per day per person that is necessary to receive medical care, admission and transportation to a medical conference for a chronic illness of you, your spouse, or your dependent, fees paid to physicians, surgeons, specialists, dentists, psychologist, and other medical practitioners, prescription drugs and insulin, nursing home, nursing services, oxygen, special education recommended by a doctor for learning disabilities caused by mental or physical impairment, sterilization, telephone and television equipment and repair for a hearing impaired person, transportation expenses including bus, taxi, plane, or 23 cents per mile for miles you drive for medical purposes plus parking fees and tolls, weight-loss program for a specific diseases diagnosed by a physician (such as obesity, hypertension or heart disease), and wheelchair purchase and repair. The cost of sex change surgery and breast pumps are also qualified medical expenses.
You can include in medical expenses amounts you pay for special equipment installed in a home or for improvements that have a medical purpose (such as ramps for your home, widening doorways, and installing support bars). Only the amount of the expense that exceeds the increase in the property value of your home is deductible. Amounts paid to buy and install special plumbing fixtures for medical reasons in a home you rent are deductible if the landlord does not reimburse you or lower the rent.
You cannot deduct expenses for cosmetic surgery, dancing lessons, diaper service, funeral expenses, health club dues, maternity clothes, nonprescription drugs, nutritional supplements, teeth whitening, or veterinary fees.
You cannot deduct expenses reimbursed to you.
Medical Expenses - Maximize Your Deductions
If you file Form 1040, U.S. Individual Income Tax Return, and itemize your deductions, you may deduct medical expenses that are greater than 10% (7.5% if y ou are age 65 or older) of your adjusted gross income. Careful tax planning may allow you to take more medical deductions during one tax year instead of spreading them over two. For example, in a year that you already have substantial medical expenses, schedule and pay for your routine doctor or dentist appointments by December 31 instead of early in the next year. Payments made on a credit card or by check are considered paid at the time the payment is made.
Self-Employed Health Insurance
If you are self-employed, you may deduct up to 100% of your medical insurance costs of a plan established under your business that covers yourself, your spouse, and your dependents. Take the deduction on Form 1040 as an adjustment to income. You may not take this deduction for any month in which you or your spouse were eligible to participate in any subsidized health plan maintained by your employer or your spouse's employer. If you are purchasing health insurance through the Marketplace and you receive the Premium Tax Credit, you will have to adjust your deduction.
Medical Expenses for Long-Term Care
The costs of qualified long-term care services can generally be included as medical expenses. Deductible medical expenses also include a portion (based on age of the insured) of the premiums paid for qualified long-term care insurance.
Premium Tax Credit
If you purchase your health insurance through your state's Health Insurance marketplace, you may be eligible for the Premium Tax Credit. This is a refundable credit based on your income, the actual cost of your health insurance, and the national average cost of the benchmark insurance plan. To qualify for the credit, you must meet all of the following:
- Buy health insurance through your state's Health Insurance Marketplace,
- Are ineligible for coverage through your employer or a government plan,
- Have income within 100% - 400% of the Federal Poverty Level (FPL) for your household,
- Do not use the Married Filing Separately filing status, and;
- Can not be claimed as a dependent by another taxpayer.
One of the unique aspects of the Premium Tax Credit is the option to have a portion of your estimated credit paid directly to your insurance provider monthly to reduce your out-of-pocket cost of your insurance. If you took advantage of the advanced payments, you must file a tax return to reconcile your advanced credit payments with the actual amount of your Premium Tax Credit. You must complete Form 8962, Premium Tax Credit, and can file using either Form 1040 or 1040A when reconciling advanced payments and/or claiming the credit.
Individual Shared Responsibility Payment - Penalty for No Health Insurance Coverage
Taxpayers who have qualifying health insurance coverage through their employer, a government plan, or because they are retired must check the appropriate box on either Form 1040, Line 61; Form 1040A, Line 38; or Form 1040EZ, Line 11.
Taxpayers who do not have health insurance coverage will be subject to a penalty unless they meet an exemption from the requirement to have coverage. The penalty is based on the taxpayer's monthly status of coverage. The annual penalty for 2015 is the greater of:
- The flat rate of $325 for each uninsured adult in the household ($162.50 if a child under 18) but no more than $975, or;
- Almost 2% of the household income.
Taxpayers who are only subject to the penalty for part of the year will need to determine which calculation is greater for the year then determine the monthly amount of the penalty.
Report the penalty for coverage on Form 1040, Line 61; Form 1040A, Line 38; or Form 1040EZ, Line 11.
Health Insurance Exemption
Certain taxpayers are eligible for an exemption from the requirement to have health insurance coverage. These exemptions can be granted on a month to month basis or an annual basis. Many of the exemptions are granted by the Marketplaces, however, some are granted by the IRS when the tax return is filed. To report an exemption or request an IRS exemption, complete Form 8965, Health Coverage Exemptions. Form 8965 can be attached to Form 1040, 1040A, or 1040EZ.