Global Tax Insights
Tax Question of the Week: Are Medical Expenses Tax Deductible on your 1040?July 26, 2013
Some expenses are deductible however, rules have changed and it is now harder for many individuals to qualify.
Yes, some of the expenses are deductible but the rules have changed, making it harder for many individuals to qualify for this deduction.
Before 2013, you could claim an itemized deduction for out-of-pocket medical expenses paid for you, your spouse, and your dependents, to the extent those expenses exceeded 7.5 percent of your adjusted gross income (AGI). AGI is the number at the bottom of page 1 of your Form 1040. It includes all your taxable income items and is reduced by certain write-offs—such as those for moving expenses, deductible IRA contributions, alimony payments, and student loan interest.
The 7.5 percent-of-AGI threshold was hard enough to clear, now, thanks to the 2010 healthcare legislation; an even higher threshold of 10 percent of AGI applies to most taxpayers, beginning in 2013.
However, if either you or your spouse will be 65 or older as of December 31, 2013, the new 10 percent-of-AGI threshold will not affect you until 2017. Until then, the 7.5 percent-of-AGI threshold will continue to apply.
If you have flexibility about when medical expenses are incurred, you may be able to obtain them in alternating years. That way, you can claim an itemized medical expense deduction every other year, or every third year—instead of never getting a tax benefit.
Are you Self-Employed?
Self-employed taxpayers who pay their own medical and dental insurance premiums are generally allowed to deduct these costs “above the line” on page 1 of Form 1040. This rule is helpful, because you do not need to itemize to benefit from an above-the-line deduction.
Overall, your only recourse for other out-of-pocket medical expenses (other than health premiums) is claiming an itemized deduction when those costs exceed 10 percent of AGI (or 7.5 percent if you qualify for the lower threshold due to your age or your spouse’s age). A list of IRS-approved medical expenses can be found in this IRS Publication 502, Medical and Dental Expenses.
Read more on the Affordable Care Act, the latest updates and watch our recent webinar series in our Healthcare Overview.