Medical Expenses and Your Taxes
Whether you have a chronic medical condition or a large family with routine medical expenses, you may have costs that are not reimbursed by your insurance provider. If this is the case, you may be looking to deduct some of these medical expenses from your taxes in the upcoming year. In 2021 there will be changes to the threshold amount that qualifies for deduction, and you may not get back what you expect. It’s important to keep good records and make sure you know what counts and what doesn’t.
Medical Expenses That Are Tax Deductible?
There is quite a bit that is tax deductible when it comes to medical expenses, but you must keep receipts, reports, and forms that prove the patient cost. You can include all of the following when preparing your tax deductions:
- Travel for medical care, including mileage on your car, bus fare, and parking fees
- Preventative care
- Medical treatment
- Surgeries and procedures
- Dental and vision
- Psychologist/psychiatrist fees
- Prescriptions for drugs and devices
- Glasses and contacts
- Dental prosthetics
- Hearing aids
Non-Qualifying Medical Expenses
If you are reimbursed for any medical expense by your insurance provider or employer, it cannot be deducted from your taxes. Other medical expenses such as cosmetic procedures and care are not deductible. Additionally, non-prescription drugs or purchases for general health are not deductible. You cannot deduct expenses for toothpaste, gym memberships, vitamins, diet foods, nicotine products, or any qualifying medical expenses paid in a year prior to the tax year.
How Much Can You Deduct?
Though the IRS allowed deductions on all medical expenses that exceeded 7.5% of adjusted gross income in 2019 and 2020, the amount will be raised for the 2021 tax year. When you file your taxes next year, you will only be allowed to deduct medical expenses that exceed 10% of your adjusted gross income. That means if your adjusted gross income is $41,000 and your medical expenses for yourself and dependents is $7,000 for the year, you can easily find the amount that is deductible by using the following formula to find 10% of your adjusted gross income:
AGI x 0.10 = threshold for medical expenses for 2021 tax year
Enter the amounts as follows:
$41,000 x 0.10 = $4,100
Following this formula, we find that in this scenario, only costs that exceed $4,100 are tax deductible. Since the total costs were $7,000, we know that $2,900 is tax deductible. If instead of $7,000, your medical expenses were a mere $2,000 for the year, you would not be able to deduct these expenses from your 2021 tax total because the cost does not reach the threshold.
Claiming the Deduction
In order to claim a medical expense deduction on your taxes, you must itemize your deductions. This can be tedious work and will require very detailed record-keeping on your part throughout the year. If you’re unsure how to properly complete your tax form, it’s important to seek out a professional who can help you get the most out of your tax return. Make sure you tell your tax preparer up front that you have medical expenses you’d like to deduct so that they can advise you correctly.