Find out if your medical expenses qualify for tax deductions in California and how to calculate eligible unreimbursed costs. Learn about deducting COVID-19 treatments, out-of-pocket expenses, and when to itemize versus take the standard deduction.
By Brad Nakase, Attorney
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You never know when unexpected medical costs can cut into your savings. However, many taxpayers have asked, “Are medical expenses tax deductible?” This is particularly true during a crisis like Covid-19 or a recession. A fortunate side effect of having health insurance is that you might be able to deduct some of your out-of-pocket medical expenses from your taxable income. In this article, we will explain how to claim a tax deduction for some medical expenses, how to determine if you are eligible, and which expenses qualify.
In the case that you have qualified medical expenses, the Internal Revenue Service will allow you to deduct unreimbursed costs associated with preventative care, treatment, procedures, as well as dental and vision care. Your out-of-pocket costs for seeing a psychiatrist or psychologist are also tax deductible. Prescription drugs and medical devices, including corrective lenses, bridges, dentures, and hearing aids, are deductible as well.
You can claim your medical travel expenses, like gas, bus fare, and parking fees, as a tax deduction.
Because the amount increases according to your income, the deduction value for medical costs also changes. For individuals who use IRS Schedule A to itemize their deductions, the amount of qualifying unreimbursed medical care expenses that surpass 7.5% of their adjusted gross income can be deducted by the IRS.
To calculate your AGI, take your taxable income and deduct any eligible expenses and investments, including contributions to a conventional IRA and deductible student loan interest.
As an illustration, if you have an adjusted gross income of $45,000 and medical costs of $5,475; you would multiply $45,000 by 0.075, which is 7.5%, to determine that the only expenses that can be included as an itemized deduction are those that are greater than $3,375. After subtracting $3,375 from $5,475 for medical expenses, your remaining deduction is $2,100. You may claim this sum on your Itemized Deductions Schedule A.
The 2017 Tax Cuts and Jobs Act (TCJA) substantially quadrupled the Standard Deduction from 2016 levels. The standard deduction for individuals is $13,850 in 2023 while for married couples filing jointly it is $27,700. These sums will rise to $14,600 and $29,200 in 2024, correspondingly.
It is common practice to allow taxpayers the option to claim either the Standard Deduction or itemized deductions when submitting their tax returns. Typically, you should go for the one that reduces your tax liability the most. It is common practice to not itemize deductions—and so not claim medical expenses—if your total tax liability is less than the standard deduction.
Note that the medical expenditures deduction is often only available to taxpayers whose itemized deductions exceed their standard deduction.
An itemized deduction for the cost of any COVID-19 treatment is available, just like for other unreimbursed medical expenses. Even though Medicare, Medicaid, or your health insurance should pay for your COVID-19 treatment, some plans may still need you to pay out of pocket for things like deductibles or copayments. Nevertheless, a large number of commercial health insurance providers have committed to paying for the whole cost of COVID-19 treatment, including any copayments or deductibles.
You can deduct any unreimbursed medical treatment costs or travel expenditures linked to COVID-19 if you itemize your deductions.
It is not possible to deduct any medical expenses that you have been reimbursed for, whether by your employer or your insurance provider. Also, the IRS usually doesn’t let you deduct costs for cosmetic surgeries. Nonprescription medications (with the exception of insulin) and general health items including vitamins, diet food, health club dues, toothpaste, and nonprescription nicotine products are not usually deductible. Medical bills paid in a prior year are likewise not deductible.
The funds in a health savings account or flexible spending account are already tax-favored, so paying for medical expenses with those funds does not qualify as a tax deduction.
No. You can claim any out-of-pocket medical costs related to COVID-19 as a tax deduction right now.
You need to itemize your deductions if you want to take advantage of the medical expenditure deduction. To itemize, you must forego the use of the Standard Deduction. If you have itemized deductions that exceed your standard deduction, then you are eligible to claim the medical costs deduction.
To file your taxes using itemization, you need to fill out IRS Form 1040 and attach Schedule A.
Fill out line 1 of Schedule A with all of your medical costs paid that year, and line 2 with your adjusted gross income (found on Form 1040).
Line 3 should contain 7.5% of your AGI.
On line 4, enter the difference between how much you spent and 7.5% of your adjusted gross income.
If you have any additional itemized deductions, the amount that is shown on line 4 will be added to other deductions, and then it is subtracted from your adjusted gross income. This will result in a reduction of your taxable income for the year.
You should likely not itemize if the sum of this amount and any additional itemized deductions you intend to claim is less than your Standard Deduction.
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