Medical Expenses

What Are Medical Expenses?

Medical expenses are any costs incurred in the prevention or treatment of injury or disease. Medical expenses include health and dental insurance premiums, doctor and hospital visits, co-pays, prescription and over-the-counter drugs, glasses and contacts, crutches, and wheelchairs, to name a few. Medical expenses that are not reimbursed are deductible within certain limits

Understanding Deductible Medical Expenses

Taxpayers with access to group health insurance coverage are seldom able to deduct medical expenses that are not reimbursed on their taxes. Only those who itemize their deductions are eligible to claim any medical expenses on Schedule A. Furthermore, only those expenses that exceed 10% of the taxpayer's adjusted gross income (AGI) can be deducted.

Tax reform that passed at the end of 2017 boosted this deduction by reducing the AGI percentage you subtract to 7.5% from 10%.

The medical expense deduction is an itemized deduction, which means it can only be used if someone turns down the standard deduction to claim it. In 2020, the standard deduction for a single taxpayer is $12,400, for married filing jointly is $24,800, and for the head of household is $18,650, which means most taxpayers won't want to itemize.

Example of Medical Expenses

Here's how someone deducts medical expenses from their taxes. First, calculate AGI by following instructions found on the first page of Form 1040. Take the result of that calculation and calculate 7.5% of that number. Subtract this result from total medical expenses for the year. The amount that's left over is the amount you can deduct for medical expenses.

As an example, consider that Tom's AGI for 2020 was $80,000, and he had $10,000 in medical expenses. Using the AGI limit of 7.5%, he would subtract 7.5% of $80,000, or $6,000, from the $10,000 in medical expenses to get a result of $4,000 — and that would be the figure he could claim as a medical expense deduction.