Important Tax Deductions for Medical Residents

Medical residency presents a unique financial landscape, with significant student loan debt and a modest income. Understanding the tax code offers opportunities to reduce your tax liability during this period.

Key Tax Credits and Above-the-Line Deductions

For medical residents, certain tax benefits can be claimed without needing to itemize deductions. These “above-the-line” deductions and tax credits directly reduce your adjusted gross income (AGI) or your final tax bill, making them accessible even if you take the standard deduction.

Student Loan Interest Deduction

The student loan interest deduction allows you to deduct up to $2,500 per year for interest paid on qualified student loans. As an above-the-line deduction, it directly reduces your taxable income. Your loan servicer will send you Form 1098-E if you paid $600 or more in interest, which reports the amount you can potentially deduct.

Eligibility for the full deduction depends on your modified adjusted gross income (MAGI). For the 2025 tax year, the deduction begins to phase out for single filers with a MAGI between $85,000 and $100,000. For those who are married and filing jointly, the phase-out range is between $170,000 and $200,000. If your income exceeds the upper threshold, you cannot claim the deduction.

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) is a nonrefundable credit that can reduce your tax bill by up to $2,000 per tax return. It is calculated as 20% of the first $10,000 in qualified education expenses, such as tuition and fees for courses that improve job skills. This may cover certain required training during residency.

The LLC is subject to income limitations. For the 2025 tax year, the credit begins to phase out for single filers with a MAGI between $80,000 and $90,000. For married couples filing jointly, the phase-out range is $160,000 to $180,000. You can only claim one LLC per tax return, and you cannot claim the LLC if you use the married filing separately status.

Understanding Unreimbursed Employee Expenses

The Tax Cuts and Jobs Act of 2017 (TCJA) changed how employees, including medical residents, can deduct work-related costs. The TCJA suspended the miscellaneous itemized deduction for unreimbursed employee expenses through 2025. This means residents who are W-2 employees cannot deduct many professional costs on their federal tax returns.

Examples of these now non-deductible expenses include:

• Fees for the USMLE Step 3 exam
• Costs for state medical licensing
• Fees for specialty board examinations
• Dues for professional organizations
• Subscriptions to medical journals
• The cost of scrubs, stethoscopes, or other required equipment

While some states may allow for the deduction of these expenses on a state return, they are not permitted on your federal return as an employee.

Tax-Advantaged Savings Opportunities

Medical residents can also lower their taxable income by contributing to tax-advantaged savings accounts. These strategies reduce your tax bill while helping you build wealth for the future.

Retirement Accounts

Contributing to a workplace retirement plan, like a 403(b) or 401(k), is a direct way to reduce taxable income. For 2025, you can contribute up to $23,500 to these accounts. Pre-tax contributions lower your taxable income for the year, and the investments grow tax-deferred.

If your employer does not offer a retirement plan, or if you wish to save more, you can contribute to a traditional Individual Retirement Arrangement (IRA). These contributions may also be tax-deductible, depending on your income and whether you are covered by a workplace retirement plan. This contrasts with Roth accounts, which use after-tax dollars and do not provide an upfront deduction.

Health Savings Account

A Health Savings Account (HSA) is available to those with a high-deductible health plan (HDHP) and offers a triple tax advantage. Contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free. To be eligible for an HDHP in 2025, the plan must have a minimum deductible of $1,650 for self-only coverage or $3,300 for family coverage.

For 2025, the maximum HSA contribution is $4,300 for individuals with self-only coverage and $8,550 for those with family coverage. These contributions reduce your taxable income for the year. Because the funds roll over annually and can be invested, an HSA can serve as a supplemental retirement account.

The Standard Deduction Decision

The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, making it more advantageous than itemizing for most taxpayers, including medical residents.

For the 2025 tax year, the standard deduction is $15,000 for single filers and $30,000 for those married filing jointly. To benefit from itemizing, your total itemized deductions—such as mortgage interest and state and local taxes (capped at $10,000)—would need to exceed these high thresholds.

Because a resident’s total itemized deductions are unlikely to exceed these amounts, the focus shifts to the above-the-line deductions, credits, and tax-advantaged savings accounts previously discussed. These become the primary tools available for managing your federal tax burden.