The Diabetes Tax Credit: What Qualifies as a Deduction?

Managing diabetes involves significant financial responsibilities. While the United States tax code does not offer a specific “Diabetes Tax Credit,” it provides tax relief through the Medical Expense Deduction. This provision allows individuals to deduct a broad array of costs for diagnosing, treating, and managing diabetes, which can lower your annual tax burden.

This is a deduction that lowers your taxable income, not a credit that directly reduces the tax you owe. Claiming it requires itemizing deductions on your tax return. This choice is beneficial only if your total itemized deductions, including medical expenses, exceed the standard deduction amount for your filing status.

Qualifying Diabetes-Related Medical Expenses

To use the medical expense deduction, you must know which costs the Internal Revenue Service (IRS) considers valid. These expenses must be for the diagnosis, cure, mitigation, treatment, or prevention of disease. For diabetes, this includes a wide range of goods and services.

A primary category of deductible expenses includes medications and supplies. Qualifying items include:

• Insulin and other prescribed oral medications to control blood sugar
• Insulin pumps and associated supplies
• Blood glucose monitors and test strips
• Lancets and ketone test strips

Payments for professional medical services are also deductible. This includes fees paid to endocrinologists, ophthalmologists for diabetes-related eye exams, and podiatrists for foot care. Laboratory fees, such as those for regular A1c tests that monitor long-term blood glucose control, also fall under this category.

Certain programs can qualify if prescribed by a doctor to treat a specific medical condition. The costs of weight-loss or smoking cessation programs recommended by a physician to manage diabetes are deductible. You can also include admission and transportation costs for attending a medical conference if the purpose is to gain information about managing diabetes for yourself, your spouse, or a dependent.

The rules for food and nutrition are specific. You cannot deduct the cost of food that meets normal nutritional needs. A deduction is only permissible for the amount that the cost of special foods, prescribed by a doctor for treating diabetes, exceeds the cost of regular food. For example, if your doctor prescribes a food item that costs $10 and a comparable regular item costs $6, you can include the $4 difference.

Transportation costs that are primarily for and essential to medical care are deductible. This includes the standard mileage rate set by the IRS for using your vehicle to travel to medical appointments or pharmacies, which is 21 cents per mile for 2024. You can also include out-of-pocket expenses for bus, taxi, or ambulance services.

Calculating the Medical Expense Deduction

The ability to deduct diabetes-related costs depends on your Adjusted Gross Income (AGI). Your AGI is your gross income minus certain specific deductions. The IRS rule states that you can only deduct the amount of your total medical expenses that exceeds 7.5% of your AGI, known as the 7.5% AGI threshold.

To determine your deduction, first calculate your AGI. Next, multiply that figure by 7.5% (0.075) to find your threshold amount. Any qualifying medical expenses paid during the year that are above this threshold are potentially deductible. You can only include expenses that were not reimbursed by insurance or other sources.

For example, suppose your AGI is $60,000. Your threshold would be $4,500 ($60,000 x 0.075). If your total qualifying, unreimbursed diabetes expenses were $7,000 for the year, you would subtract the $4,500 threshold from your total expenses. This calculation ($7,000 – $4,500) results in a medical expense deduction of $2,500, which reduces your taxable income.

Required Documentation and Record-Keeping

To claim the medical expense deduction, you must maintain organized records to substantiate your claim in case of an IRS inquiry. Keeping these documents throughout the year simplifies tax preparation.

Your documentation should include:

• Receipts for all medications and supplies, such as insulin, syringes, and test strips.
• Invoices and billing statements from healthcare providers like endocrinologists and laboratories.
• Explanation of Benefits (EOB) forms from your insurance company, which show the total cost, the insured amount, and your out-of-pocket payment.

For transportation expenses, a detailed mileage log is required. This log should document the date, locations, purpose of the trip, and round-trip mileage. For less common expenses, like a weight-loss program or special foods, you must have a written prescription or a letter from your doctor stating it is a necessary treatment for managing your diabetes.

How to Claim the Deduction on Your Tax Return

If you choose to itemize, the deduction is claimed on Schedule A (Form 1040), Itemized Deductions, which is filed with your main Form 1040 tax return. The first section of Schedule A is for medical and dental expenses.

On line 1 of Schedule A, you will enter your total qualifying, unreimbursed medical expenses. The form then guides you through the 7.5% AGI threshold calculation. You enter your AGI on line 2, multiply it by 7.5% on line 3, and subtract that amount from your total expenses to find your final deductible amount on line 4.

This figure is then combined with your other itemized deductions, such as state and local taxes and charitable contributions. The total of all itemized deductions is entered on your Form 1040, reducing your AGI to arrive at your taxable income.

Other Tax-Advantaged Accounts for Diabetes Care

Given the high 7.5% AGI threshold, many people find it difficult to qualify for the medical expense deduction. Other tax-advantaged accounts provide more accessible ways to use pre-tax dollars for diabetes care, such as Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs).

An HSA is a savings account for healthcare expenses, available to those enrolled in a high-deductible health plan (HDHP). Contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are tax-free. Unused funds in an HSA roll over from year to year.

FSAs are employer-sponsored accounts that let you set aside pre-tax salary for out-of-pocket medical expenses. The funds can be used for the same qualifying expenses as the medical deduction, like insulin and co-pays. FSAs have a “use-it-or-lose-it” rule, meaning funds must generally be spent within the plan year, though some employers offer a grace period or a limited rollover.

Both HSAs and FSAs allow you to pay for diabetes supplies with tax-free money, providing a direct financial benefit without needing to meet an AGI threshold. You cannot deduct expenses on Schedule A that you paid for using funds from an HSA or FSA, as this would be a duplicate tax benefit.