Can I Claim Medical Expenses on My Taxes? Here’s What to Know
Learn how to navigate tax deductions for medical expenses, including eligible costs and documentation requirements.
Tax season often prompts individuals to explore potential deductions that can ease their financial burden. Medical expenses stand out as a significant area where taxpayers may find relief. Understanding which medical costs are eligible for tax deductions is crucial for maximizing returns and ensuring compliance with IRS regulations.
This article examines the specifics of claiming medical expenses on taxes, focusing on what qualifies and how to document these costs effectively.
Qualifying Expenses
Qualifying expenses under the Internal Revenue Code (IRC) must be necessary for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any structure or function of the body. Here are specific categories that fall under this definition:
Hospitalization and Surgery
Expenses for hospital stays and surgical procedures, including room and board, nursing services, and operating room fees, are deductible if they exceed 7.5% of your adjusted gross income (AGI). Elective surgeries that are not medically necessary do not qualify. Taxpayers should retain detailed billing statements and receipts to substantiate these costs when filing their returns.
Prescribed Treatments
Medical treatments prescribed by licensed healthcare professionals, such as medications and therapy sessions, are deductible. This includes prescription drugs and insulin. Alternative treatments like acupuncture or chiropractic services may also qualify if prescribed. Retaining prescriptions and invoices is essential. Over-the-counter medications generally do not qualify unless specifically prescribed.
Dental and Vision Care
Dental and vision care expenses, such as check-ups, surgeries, fillings, extractions, braces, eyeglasses, and contact lenses, are deductible. Receipts and documentation from providers are necessary to substantiate these claims. Aggregating these costs with other medical expenses can help meet the 7.5% AGI threshold for deductions.
Assistive Equipment
Expenditures on assistive equipment, such as wheelchairs, crutches, hearing aids, and prosthetics, are eligible for deductions. Home modifications for medical accessibility, like installing ramps or handrails, also qualify if medically necessary. Documentation, including receipts and a letter from a healthcare provider, is critical for supporting these claims.
Documenting Medical Costs
Accurate documentation of medical costs is essential for claiming deductions. The IRS requires taxpayers to maintain receipts, medical bills, and insurance statements to verify expenses. These documents are also crucial during an audit.
Organizing records systematically throughout the year simplifies tax preparation. Digital tools or apps can help scan and store these documents electronically. Keeping a detailed log of medical visits, treatments, and related expenses, including dates, services, and amounts paid, is highly beneficial.
For insurance reimbursements, it’s vital to separate out-of-pocket expenses from those covered by insurance. Only unreimbursed medical costs are eligible for deductions. Maintaining a separate record of reimbursed amounts ensures that only qualifying expenses are claimed.
Insurance Reimbursements
Only the portion of medical costs not reimbursed by insurance can be deducted. Understanding your insurance policy and its reimbursement terms is crucial. For example, high-deductible health plans might result in lower reimbursements, leaving more expenses eligible for deduction, while comprehensive plans with extensive coverage may reduce out-of-pocket costs.
Reviewing Explanation of Benefits (EOB) statements from your insurer can help clarify which amounts were covered and what remains your responsibility. If a reimbursement is received in a subsequent year for an expense previously deducted, IRS guidelines require reporting the reimbursed amount as income in the year it is received.
Considering Health Accounts
Health accounts, such as Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), provide tax advantages for managing healthcare costs. These accounts allow taxpayers to set aside pre-tax dollars for medical expenses, reducing taxable income.
HSAs are ideal for individuals with high-deductible health plans. They offer tax-deductible contributions, tax-free earnings, and tax-free withdrawals for qualified expenses. For 2023, HSA contributions are capped at $3,850 for individuals and $7,750 for families, with an additional $1,000 catch-up contribution for those aged 55 and older. Unlike FSAs, HSA funds roll over year to year, offering greater flexibility.
FSAs, while also offering pre-tax benefits, have more constraints. Contributions are capped at $3,050 for 2023, and funds are generally subject to the “use-it-or-lose-it” rule, though some employers allow a grace period or a $610 carryover. Careful planning is necessary to maximize the use of FSA funds within the plan year. These accounts can cover a broad range of expenses, including copayments and medical supplies.