Is There a PIP Medical Expense Deduction?

Personal Injury Protection (PIP) insurance is a type of no-fault auto coverage that pays for your medical expenses regardless of who caused an accident. When tax time arrives, many people wonder if medical costs covered by PIP can be deducted. Understanding the interaction between these insurance benefits and tax rules can help you determine your potential deductions.

The Medical Expense Deduction Threshold

The Internal Revenue Service (IRS) allows taxpayers to deduct qualified medical expenses, but the ability to do so hinges on your Adjusted Gross Income (AGI). The rule states that you can only deduct the amount of medical expenses that exceeds 7.5% of your AGI.

To illustrate this, consider a person with an AGI of $60,000. The 7.5% threshold would be $4,500. If this individual incurred $8,000 in qualified medical expenses during the year, they would subtract the $4,500 threshold from their total costs, leaving a deductible amount of $3,500. This calculation is performed for all medical expenses combined, not just those from an accident.

Coordinating PIP Insurance with Tax Deductions

The fundamental rule when dealing with insurance and taxes is that you cannot deduct any expense for which you were reimbursed. This principle applies to costs paid by your PIP insurance. If your policy covers a $10,000 hospital bill, that amount is not deductible because you did not pay for it out-of-pocket.

What you can potentially deduct are the medical expenses that PIP did not cover. This includes your PIP deductible, co-payments, and any medical bills that exceed your PIP policy’s maximum coverage limit. These out-of-pocket costs are the amounts you can add to your total medical expenses for the year.

For example, imagine you are in an accident and incur $20,000 in medical bills. Your PIP policy has a $1,000 deductible and a coverage limit of $15,000. In this scenario, your PIP insurer pays $14,000 of the bill. You are responsible for the $1,000 deductible and the $5,000 that exceeded your policy limit, for a total of $6,000 in out-of-pocket costs. This $6,000 is the amount you can potentially deduct, provided your total medical expenses for the year surpass the 7.5% AGI threshold.

If you deduct a medical expense in one year and receive an insurance reimbursement for it in a later year, you must report the reimbursement as income. You only need to include the reimbursed amount up to the value of the deduction that lowered your taxes in the prior year.

Identifying Deductible Accident-Related Medical Costs

The IRS defines medical care expenses as payments for the diagnosis, cure, mitigation, treatment, or prevention of disease. This includes payments to doctors, surgeons, chiropractors, and dentists. Hospital stays, including inpatient meals and lodging, are qualifying expenses, as are prescription medications and physical therapy. The cost of ambulance services is also a deductible expense.

Other related costs qualify, such as purchasing medical equipment like crutches or wheelchairs. You can also deduct transportation costs for traveling to medical care, which includes bus fare or a standard mileage rate of 21 cents per mile for using your personal vehicle in 2025.

Reporting the Deduction on Your Tax Return

To claim the medical expense deduction, you must itemize your deductions on Schedule A (Form 1040). Choosing to itemize means you cannot also take the standard deduction. You should only itemize if your total itemized deductions exceed your available standard deduction.

On Schedule A, you will report your total qualified medical expenses and subtract 7.5% of your AGI to determine your final deductible amount.

Meticulous record-keeping is necessary to support your claim. You must keep all receipts and bills from medical providers and the Explanation of Benefits (EOB) statements from your PIP insurer. These documents provide proof of the total charges, what insurance paid, and the balance you paid out-of-pocket.