Important Things to Know About Medical Expenses and Your Income Tax
What Expenses Qualify as Medical Expenses?
Internal Revenue Code 213(d) defines expenses for medical care as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, as well as the cost of related transportation, long-term care, and medical insurance.
This definition is rather broad and encompasses traditional medical care as well as alternative treatments that fit the above definition. Tax cases and rulings have allowed medical expense deductions for massage therapy, home elevators, Jacuzzi tubs, and a wide variety of similar medical equipment and treatments. In addition, both naturopathic and holistic treatments have been recognized as qualifying medical expenses.
Because some non-traditional expenses may appear personal in nature it is important to establish that there is a direct or proximate relation between the expenses and the diagnosis, cure, mitigation, treatment or prevention of disease which justified a reasonable belief that the treatment would be effective.
In addition to the obvious expenses: insurance, doctor co-pays, and prescriptions, the following often-overlooked items are deductible on Schedule A:
- Long Term Care Insurance premiums up to $420 per year for individuals 40 years old and younger
- Admission and travel to a medical conference for a chronic illness suffered by you, your spouse, or one of your dependents
- Therapy and supplemental education expenses
- Specialized equipment
- Improvements made to your home that don’t increase the home’s value
- Specialized diet, to the extent the cost exceeds the cost of what would normally be spent for food and is medically prescribed
- Travel and Transportation costs to and from doctors, treatments and hospitals ($.18 per mile for 2018), including the travel expenses of an adult accompanying a minor child
Whose Medical Expenses Can You Deduct?
In general, you can deduct the cost of medical expenses paid for by you for yourself, your spouse and your dependents. But who qualifies as a dependent? In general, under Internal Revenue Code section 152 a dependent for purposes of the medical deduction is a child or other relative for whom you provided 50% or more of their support for the tax year. A child may be treated as a dependent until age 19, or age 24 if they are a full-time student for at least five months of the year, unless they are permanently and totally disabled in which case the age requirement doesn’t apply. For the purposes of the medical deduction, the limitation on earnings is removed.
In addition, Internal Revenue Code section 213 allows for the deduction of medical expenses paid on behalf of a person who might not qualify as a dependent due to exceeding the income level or for a dependent claimed under a multiple-support agreement.
For example, let’s assume you provide more than 50% support to your 25-year-old son who has a part-time job which puts his earnings over the threshold for dependency. You can still deduct his medical expenses, even though you can’t claim him as a dependent. His income level is ignored for purposes of the medical deduction.
In the case of multiple support agreements wherein several relatives agree to split the cost of support but one relative is granted the right to claim that relative as a dependent, only the person granted dependency exemption can deduct medical expenses. In this case, it is important that the medical expenses be covered by that one person and other non-medical expenses may be covered by the other relatives providing support. (Remember you have to actually pay the expenses in order to deduct them.)
It is important for you to always pay the medical service provider directly in order to claim the deduction.
Health Reimbursement Arrangements
Taxpayers who have small businesses which have no outside employees may also benefit from setting up Health Reimbursement Arrangements (HRAs.) HRAs are a type of employee benefit plan provided to its eligible employees that reimburses them for specified medical expenses incurred by them or their dependents which are not covered by insurance. Plans are subject to anti-discrimination rules and are not available to the self-employed taxpayer, so prior to establishing the plan it is very important for you to speak with your tax advisor.
Article written by Barbara Loutos, CPA, Loutos Consulting.
The information on this website is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor. Figures cited in any examples are for illustrative purposes only. References to tax rates include federal taxes only and are subject to change. State law may further impact your individual results. Annuities are subject to regulation by the State of California. Payments under such agreements, however, are not protected or otherwise guaranteed by any government agency or the California Life and Health Insurance Guarantee Association. A charitable gift annuity is not regulated by the Oklahoma Insurance Department and is not protected by a guaranty association affiliated with the Oklahoma Insurance Department. Charitable gift annuities are not regulated by and are not under the jurisdiction of the South Dakota Division of Insurance.