What Is MED in Taxes? The Medical Expense Deduction

The Medical Expense Deduction (MED) allows taxpayers to reduce their taxable income by deducting certain medical and dental costs. While most personal expenses are not deductible, the Internal Revenue Service (IRS) provides an exception for these health-related expenses. This deduction is available when qualified expenses exceed a defined percentage of a taxpayer’s income. Understanding what qualifies as a medical expense and the rules for its deduction can significantly impact an individual’s tax liability.

Identifying Qualified Medical Expenses

The Internal Revenue Service (IRS) defines a medical expense as the cost of diagnosis, cure, mitigation, treatment, or prevention of disease, along with costs for treatments affecting any part or function of the body. These expenses must be primarily to alleviate or prevent a physical or mental disability or illness. The range of qualified expenses is broad, covering various services and items necessary for health.

Common examples of qualified medical expenses include payments to doctors, dentists, surgeons, chiropractors, psychiatrists, and other medical practitioners. Prescription medications, inpatient hospital care, and long-term care services also qualify. Additionally, costs for certain medical equipment like crutches, wheelchairs, eyeglasses, contact lenses, and hearing aids are deductible. Premiums paid for medical care insurance and qualified long-term care insurance can also be included, provided they are not paid with pre-tax dollars.

Travel expenses incurred for medical care are also considered qualified medical expenses. This includes mileage for driving a personal car, bus fare, train fare, parking fees, and tolls. Lodging expenses, excluding meals, while away from home for medical care in a hospital or medical facility can also be included, with a limitation of $50 per night for each eligible person. These travel costs must be primarily for and essential to medical care, not for personal pleasure or vacation.

Expenses generally not considered qualified include cosmetic surgery that is not medically necessary, general health items like vitamins or supplements unless prescribed for a specific medical condition, and over-the-counter medications without a prescription (except for insulin). General health improvement programs, such as diet food for general weight loss or health club dues, are also not deductible.

Deduction Eligibility and Limitations

Medical expenses are categorized as an itemized deduction, which means taxpayers must choose to itemize their deductions on Schedule A (Form 1040) instead of taking the standard deduction. Taxpayers only benefit from itemizing if their total itemized deductions exceed their standard deduction amount. For many, the standard deduction provides a greater tax benefit, making the medical expense deduction less common.

Only the amount of qualified medical expenses exceeding a certain percentage of the taxpayer’s Adjusted Gross Income (AGI) is deductible. For most tax years, this threshold is 7.5% of AGI. For instance, if a taxpayer has an AGI of $50,000 and $6,000 in qualified medical expenses, they would first calculate 7.5% of their AGI, which is $3,750. The deductible amount would then be the expenses exceeding this threshold: $6,000 minus $3,750, resulting in a $2,250 deduction.

Medical expenses can be included for the taxpayer, their spouse, and dependents. Even if an individual is not claimed as a dependent on your return, their medical expenses might still be deductible if you paid them and they would otherwise qualify as a dependent.

Only out-of-pocket expenses not reimbursed by insurance or other sources can be included in the deduction. This means any portion of medical bills paid by health insurance, or through other plans, cannot be counted. Expenses paid with pre-tax funds from Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) cannot be deducted, as these funds are already tax-advantaged, preventing a “double-dipping” benefit.

Claiming Medical Expense Deductions

Once qualified medical expenses are identified and the deductible amount is calculated based on the Adjusted Gross Income (AGI) threshold, these deductions are reported on Schedule A (Form 1040), Itemized Deductions. The total amount of all itemized deductions, including medical expenses, is then transferred to Form 1040 to reduce taxable income.

Taxpayers must maintain thorough and organized records for all claimed medical expenses. This record-keeping includes receipts, invoices, and explanations of benefits (EOBs) from insurance companies. These documents should detail the nature of services received, who received the care, the purpose of the expenses, and the amounts and dates of payments. Meticulous record-keeping is important for substantiating claims in case of an IRS inquiry or audit.

The timing of payments is also a factor; only expenses actually paid during the tax year for which the deduction is being claimed are eligible. This applies regardless of when the services were rendered. For instance, if a medical bill from the previous year was paid in the current tax year, it would be included with the current year’s expenses.

For detailed guidance on qualified medical expenses, taxpayers can refer to IRS Publication 502, “Medical and Dental Expenses.” This publication provides information on various scenarios and specific types of expenses.