Tax Day is coming: The health expenses you may be able to deduct

Who should take medical expense deductions? | Qualified vs. unqualified expenses | Self-employed health insurance deductions

Certain medical expenses could help you get a tax refund. If you’re in the process of gathering up all of your receipts to share with the accountant (or for a date with your favorite tax preparation software), do yourself a favor and add all those prescription, eye glasses, and hospital expenses to the pile. For some taxpayers, medical and healthcare-related expenses might be tax deductible. 

There are a few calculations you (and, ideally, your accountant) will need to make to see if you qualify, but it could be worth your time in order to keep more dollars in your pocket and fork over fewer to Uncle Sam.

Here’s what you need to know about medical expense deductions that can lower your tax bill.

Taking the standard deduction versus itemizing

First and foremost, for the typical W2-earner (if you’re self-employed, skip to the bottom) you can really only deduct medical expenses if you’re filing an itemized return, rather than taking the standard deduction. 

Each taxpayer is afforded a $12,950 standard deduction (for married joint-filers, that number is $25,900) for the 2022 tax year. This means that your itemized deductions need to exceed $12,950 if you’re a single filer (or $25,900 for a joint-filer) for it to make financial sense to itemize.

“What we usually do is add up charitable contributions, mortgage interest, real estate taxes, and medical, and if that’s more than the number, we itemize,” explains Wanda Talley Schebel, CPA, PA, an Orlando-based accountant. 

If itemizing your deduction is the better option, you’ll need to clear one more hurdle in order to deduct your medical expenses: They have to exceed 7.5% of your adjusted gross income (AGI) for 2021. Your AGI is your gross income minus certain expenses, such as student loan interest and contributions to your retirement account. That means you are allowed to deduct any unreimbursed medical expenses over that amount. (And that 7.5% remains the same if you’re filing jointly or have dependents.) For example, a married couple with adjusted gross income of $89,000 would need to have more than $6,675 of qualified medical expenses. 

If that sounds like a kind of high number, well, it is. For Los Angeles-based tax practitioner Milton Rodriguez, CFP, EA, most of his clients who are able to take this deduction are often older (and hence have more medical expenses), make large charitable gifts, have a larger mortgage payment, or have had a major medical incident (such as a surgery). 

However, if you’ve met all of these qualifications, you can confidently deduct those medical expenses.

What qualifies as a deductible medical expense?

Generally speaking, any unreimbursed medications or therapies that have been prescribed by a doctor should be tax deductible, says Schebel. Medical expense deductions typically include:

1. Copays and any other unreimbursed payments made to a medical professional (including doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners)
2. Health insurance premiums (The key is that they cannot be made with pre-tax dollars. So if your premiums are paid through a payroll deduction by your company, they probably don’t qualify. Check with your tax pro on health insurance deductions to confirm.) 
3. Prescription medication
4. Insulin
5. Certain medical supplies
6. Eyeglasses and contact lenses
7. Dental expenses (non-cosmetic)
8. Orthodontia
9. Surgeries and medical procedures
10. Alcohol or drug rehabilitation programs
11. Mileage (20 cents per mile) or actual travel costs such as taxi, Uber, bus, or train ride for trips to the doctor or pharmacy and any parking expenses while there
12. Unreimbursed expenses for COVID-19 protective equipment including masks, hand sanitizer, and hand sanitizing wipes. Teachers may be eligible to deduct other COVID-19 prevention supplies, but check with your accountant to be sure.

If your employment, or financial situation, has recently changed you may be closer to the 7.5% cutoff than you were in previous years. Discuss with your tax professional to see if you can claim these, and other deductions for working from home, starting a new business, or net operating losses if you’re a business owner.

What does not qualify as a deductible medical expense?

Although health-related, these expenditures typically can’t be deducted:

• Vitamins, supplements, and over-the-counter drugs such as Tylenol or Advil unless they are prescribed by a medical practitioner as treatment for a specific medical condition diagnosed by a physician
• Bandages
• Lotions and ointments
• Cosmetic procedures, such as veneers
• Gym or spa memberships
• Organic foods

That said, there are plenty of gray areas. For instance, a typical massage wouldn’t be tax deductible, but if your doctor has prescribed therapeutic massage for recovery from a back injury, for instance, it would be deductible. The same goes for a gym membership. If your doctor says it’s critical that you lose weight for your health, you may be able to deduct a portion of your monthly payments. 

If you have a note from your doctor indicating an expense is a medical necessity, you should be able to deduct it, agree both Schebel and Rodriguez. Again, this is where you’ll want to work with a tax professional to identify the appropriate tax deductions. You’ll also want to maintain good records to document your medical expenses and related prescription drugs by doctors. Keep these records with a copy of your tax return in case you are audited and need to justify the amount of the deduction.  

Self-employed health insurance deduction 

If you are not a W2-earner, most of the above still applies, except for one big bonus: You will likely be able to claim all of your health insurance premium payments if you’re paying for your own insurance (and/or that of a dependent). This is considered an “above-the-line” income adjustment and not a medical deduction, meaning it reduces the amount of your adjusted gross income (AGI). “Above-the-line” deductions are more rare because by reducing your AGI, they reduce the amount of taxable income that is included in tax calculations. If you contribute to a Health savings account (HSA), those contributions are also considered “above-the-line” deductions.

This may not be the case, however, if you are an incorporated business, says Schebel. As she reiterates, when in doubt, “Always seek out tax advice.”