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What Health Care Costs Can I Deduct?
March 24, 2015 by
You might have thought that with the new Health Care Reform more of all the money you spend on health insurance and medical expenses would be deductible. In fact, Obamacare (the “
Affordable Care Act
”) has had very little impact on the personal itemized medical deduction, other than raising the floor a bit so that less is deductible. Below is a quick overview of what expenses are allowed under the medical expenses deduction and how it works.
Health Insurance Costs
The cost of health insurance (and to an extent qualified long-term care insurance) is includable in qualified deductible medical expenses, but only the portion that you pay for “out-of-pocket.” This means that health insurance paid for by your insurance company or your employer is not deductible. In addition, health insurance expenses paid for with a pretax deduction from your paycheck, such as a Medical Flex Plan, Medical Reimbursement Plan, or Cafeteria (Section 125) Plan, are not deductible. If you are not sure if the insurance deductions from your paycheck are pre-tax or after-tax, check with your HR department.
If you are self-employed and paying for your own insurance you can take a deduction for it, but it is usually a better deal to claim the cost as a self-employed health insurance deduction if you are eligible.
The cost of diagnosis, cure, mitigation, treatment, or prevention of disease and the costs for treatments affecting any part or function of the body are considered deductible medical costs. But, again, the costs are deductible only if you pay for them with after-tax dollars and are not reimbursed. As an example, if your doctor’s visit costs $100 and you pay a $20 co-pay, with the insurance company picking up the remaining $80, only $20 is a potentially deductible medical expense. But if you pay the $20 with a pre-
Flexible Spending Account, it would not be deductible.
Costs considered for your general health are not deductible, such as swimming lessons or health club dues. Cosmetic surgery is not deductible, unless to remediate a deformity resulting from disease or injury.
Your out-of-pocket costs for prescription drugs are generally includable in your deductible medical expenses. Not includable are controlled substances, such as marijuana (yes, even if legal under state law), over-the-counter medications that you would not need a prescription for, or nutritional substances (unless prescribed for a specific medical condition) and other similar items. Illegally imported drugs are not deductible.
Ancillary Medical Costs
Dental costs, prescription glasses or contacts, and transportation costs are deductible. Transportation costs are the actual costs of gas and oil used on your vehicle (but none of the general costs of the vehicle), or you can use can use a standard mileage rate of 23.5¢ per mile for 2014. Both methods allow you to include parking and tolls. Travel expenses must be for specific reasons, and you cannot deduct travel for the general improvement of your health, such as airfare to fly to Hawaii to take swimming lessons.
Timing of Medical Payments
Payments for qualified medical expenses made in the tax year for you, your spouse, and your dependents are deductible on that year’s
return. For example, if you paid for services rendered in December of 2014 in January of 2015, the payment is deductible on your 2015 taxes. Payments made by credit card are considered paid on the date charged. If the payment is made in advance for care that will be rendered substantially beyond the end of the year, it is not deductible for the year paid (except for qualified long-term care contracts and similar expenses).
That Pesky Percentage of Income Floor
For any of these costs to truly result in a deduction you must itemize your deductions on the Schedule A. Even then, the combined deductible medical costs must be greater than 10% of your adjusted gross income (the last number on the front page of the 1040). The portion that exceeds 10% is the actual deductible amount. The 10% amount is lowered to 7.5% for taxpayers 65 years of age and older until 2017.
This is just the briefest of summaries. If you have a general question or comment on deductible (or not) medical expenses, please feel free to respond with a comment.
Affordable Care Act
A very good question. And as with so many answers it starts out with it depends. If the in home care is being provided in lieu of placing your wife in a licensed care facility, then it is likely that all of the expense is deductible as a medical expense. If this is the case you will need to be sure to retain the documentation from your wife’s physician verifying this.
If, on the other hand, that the in-home care is not being provided in lieu of long-term care, then the only deductible amount is that amount that is attributable to nursing services. Nursing services need not be performed by a licensed nurse to be deductible. Nursing services include giving meds, changing dressings, bathing, grooming, and assistance with ADLs (activities of daily living) if necessary. However, personal and household services provided by the caretaker would not be deductible in this circumstance. Note however, that those costs not deductible as medical expenses may qualify you for the “Child and Dependent Care Credit” since the services are being provided to allow you to work. More information on the Child and Dependent Care Credit is available <strong><a href="http://www.irs.gov/taxtopics/tc602.html" title="ChildDepCareCredit" rel="nofollow">here</a></strong>.
Medical expenses, as you know, is a personal itemized deduction. You are correct that there is a 7.5% floor (for those 65 and older through 2016, 10% in 2017 and thereafter). When you enter your expenses in TurboTax it keeps track of them behind the scenes. Once your total itemized deductions exceed the standard deduction TurboTax will automatically generate the Schedule A showing your medical expense entries. The specific entries can be viewed on the Medical Expenses Worksheet at any time, unless you are using the online version of TurboTax. If you have entered all of your expenses in all categories, and you are not receiving a deduction for your medical expenses, it likely means that either your medical expenses did not exceed the floor, or that your total itemized deductions did not exceed the standard deduction.
3/31/2015 1:24:05 PM
I am paying around $25,000 a year for care giver expenses from an established company for my wife with dementia, so I can work. Are these costs deductable after my 7 1/2% medical exclusion is subtracted? Turbo Tax Delux does not present me with this question, nor does it have the IRS form to add to my return..
What do I do?
3/31/2015 5:42:36 AM
The Federal Carryover Worksheet is a worksheet generated by TurboTax that shows what information from last year’s return is being brought forward into your current return, and also the amount of certain items being carried forward to next year’s taxes. It is obtainable by printing your return, the Federal Carryover Worksheet should print when you print your full return, regardless of the version used. If you did not use the online version, you can also view the Federal Carryover Worksheet by returning to TurboTax, clicking on “Forms” in the upper right corner, then scrolling down the “Forms in My Return” on the left side of the screen until you encounter “Carryover Wks.” Clicking on this will display the Federal Carryover Worksheet.
We are not TurboTax, nor owned by them, but we are providers of the Audit Defense services offered through them. Questions relating to TurboTax, and the use of the software, are best answered by TurboTax support, available <strong><a href="https://turbotax.intuit.com/" title="Intuit" rel="nofollow">here</a></strong>. We try to provide general tax information through forums such as our blog as an assistance to our Members and as a public service.
3/30/2015 11:25:49 AM
The test for deducting someone’s medical expenses is slightly expanded versus claiming them as a dependent. If the person would have been your dependent, except that they had $3,950 or more in gross income in 2014 (or if they filed a joint return or, if filing jointly, they could be claimed as a dependent on someone else’s 2014 return), then, yes, you may deduct the medical expenses you paid.
There is more information on qualifying relatives <strong><a href="http://www.irs.gov/publications/p501/ar02.html#en_US_2014_publink1000220939" title="QR IRS P501" rel="nofollow">here</a></strong>. Be sure that your son qualifies as your “Qualifying Relative” including working through Worksheet 2 to verify you provided over half of his support. Also you will need the records, which we know are sometimes difficult for third parties to obtain due to privacy issues, that the rehab was medically prescribed and the facility was a licensed facility for the prescribed rehab.
3/30/2015 11:13:56 AM
First you should obtain something from the doctor, if you don’t have it already, saying that the liposuction was for a medical reason, and not for cosmetic purposes only. Then you can deduct the expense in the year that you pay it. This would be your “out-of-pocket” cost, i.e., the part you are paying out of after-tax dollars. After-tax means it is money you earned that you have either already paid income tax on, or will pay income tax on. Again, if you charge the amount on a credit card, it is considered paid in the year you charged the expense, not when you pay off the credit card bill. Also you can borrow money by other than credit card if you wish. The same rule would apply, you would deduct the bill in the year you paid it, and not when you paid off the loan used to pay the bill.
3/30/2015 11:09:39 AM
Nestor L. Villamaria
Thank you for the e mail response but, I did not get the correct answer for the question. What is Federal Carryover Worksheet
3/27/2015 3:22:35 PM
ROZSA J. HORVATH
Last year, I paid for my son's addiction Rehab costs to the tune of $59,500. is any of that deductible? He did not live with me, but I paid for much of his support. I'm sure there are many parents in the same situation.
3/27/2015 3:02:07 PM
I had a procedure this year, liposection payed six months free inteserest, can i declaire next year for my medical exepnses? or any other method?
Thank in advence. Tony q
3/27/2015 1:43:33 PM
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