For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.
Key Takeaways
• In 2021, the IRS allows all taxpayers to deduct their qualified unreimbursed medical care expenses that exceed 7.5% of their adjusted gross income.
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• You must itemize your deductions on IRS Schedule A in order to deduct your medical expenses.
• The IRS allows you to deduct unreimbursed payments for preventative care, treatment, surgeries, dental and vision care, visits to psychologists and psychiatrists, prescription medications, appliances such as glasses, contacts, false teeth, and hearing aids, and expenses that you pay to travel for qualified medical care.
• At this time, all unreimbursed medical expenses incurred as a result of COVID-19 are tax-deductible.
• If you pay for your medical expenses using money from a flexible spending account or health savings account, those expenses aren’t deductible because the money in those accounts is already tax-advantaged.
Medical expenses can take a bite out of your budget in any year. But especially during the pandemic, many taxpayers want to know: Are medical expenses tax-deductible? Fortunately, if you have medical bills that aren’t fully covered by your insurance, you may be able to take a deduction for those to reduce your tax bill. We’ll take you through which medical expenses are tax-deductible, if you qualify for this deduction, and how to claim it.
Are medical expenses tax-deductible?The IRS allows you to deduct unreimbursed expenses for preventative care, treatment, surgeries, and dental and vision care as qualifying medical expenses. You can also deduct unreimbursed expenses for visits to psychologists and psychiatrists. Unreimbursed payments for prescription medications and appliances such as glasses, contacts, false teeth, and hearing aids are also deductible.
The IRS also lets you deduct the expenses that you pay to travel for medical care, such as mileage on your car, bus fare, and parking fees.
What is the deduction value for medical expenses?The deduction value for medical expenses varies because the amount changes based on your income. In 2021, the IRS allows all taxpayers to deduct their total qualified unreimbursed medical care expenses that exceed 7.5% of their adjusted gross income if the taxpayer uses IRS Schedule A to itemize their deductions.
Your adjusted gross income (AGI) is your taxable income minus any adjustments to income, such as contributions to a traditional IRA and deductible student loan interest.
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For example, if you have an AGI of $45,000 and $5,475 of medical expenses, you would multiply $45,000 by 0.075 (7.5%) to find that only expenses exceeding $3,375 can be included as an itemized deduction. This leaves you with a medical expense deduction of $2,100 ($5,475 minus $3,375).
Additionally, as a result of the Tax Cuts and Jobs Act (TCJA) of 2017, the standard deduction has nearly doubled from where it was in 2016. For 2021, the standard deduction is $12,550 for single taxpayers and $25,100 for married taxpayers filing jointly. The amount of the standard deduction usually determines whether or not you itemize your deductions or take the standard deduction. Unless your deductions are higher than the standard deduction, you usually won’t itemize, which means you won’t receive medical expense deductions.
TurboTax Tip: Normally, you should only claim the medical expenses deduction if your itemized deductions are greater than your standard deduction (TurboTax can also do this calculation for you).
Are any pandemic-related medical expenses tax-deductible?The cost of any COVID-19 treatment is tax-deductible as an itemized deduction just like ordinary unreimbursed medical expenses. Health insurance companies, Medicare, or Medicaid should cover your treatment for COVID-19, but that might still leave patients with certain health insurance plans on the hook for deductibles or copayments. However, many private health insurance companies have agreed to cover all COVID-19 treatment costs, including any deductibles or copayments.
If you have any medical treatment expenses or related travel expenses for COVID-19 that haven’t been reimbursed, those can be tax-deductible if you itemize.
Which medical expenses aren’t tax-deductible?Any medical expenses you get reimbursed for, such as by your insurance or employer, can’t be deducted. In addition, the IRS generally disallows expenses for cosmetic procedures. You typically can’t deduct the cost of nonprescription drugs (except insulin) or other purchases for general health, such as toothpaste, health club dues, vitamins, diet food, and nonprescription nicotine products. You also can’t deduct medical expenses paid in a different year.
Additionally, if you pay for your medical expenses using money from a flexible spending account or health savings account, those expenses aren’t deductible because the money in those accounts is already tax-advantaged.
Are any pandemic-related qualified medical expenses not tax-deductible?No. At this time, all unreimbursed medical expenses incurred as a result of COVID-19 are tax-deductible.
How do I claim the medical expenses tax deduction?To claim the medical expense deduction, you must itemize your deductions. Itemizing requires that you don’t take the standard deduction. Normally, you should only claim the medical expenses deduction if your itemized deductions are greater than your standard deduction (TurboTax can also do this calculation for you).
If you elect to itemize, you must use IRS Form 1040 to file your taxes and attach Schedule A.
On Schedule A, report the total medical expenses you paid during the year on line 1 and your adjusted gross income (from your Form 1040) on line 2.Enter 7.5% of your adjusted gross income on line 3.Enter the difference between your expenses and 7.5% of your adjusted gross income on line 4.The resulting amount on line 4 will be added to any other itemized deductions and subtracted from your adjusted gross income to reduce your taxable income for the year.If this amount, plus any other itemized deductions you claim, is less than your standard deduction, you probably shouldn’t itemize.Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax, you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.