Understanding Medical Expense Deductions from a Tax Perspective
Medical expense deductions can help lower your taxable income if you have significant healthcare costs. However, not all medical expenses qualify, and certain thresholds must be met. Here’s what you need to know when considering medical expense deductions for tax purposes.
1. The 7.5% AGI Threshold
For 2024 and 2025, you can deduct qualified unreimbursed medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI) if you itemize deductions.
Example:
- Your AGI is $50,000
- 7.5% of $50,000 = $3,750
- If you incurred $10,000 in medical expenses, you can deduct $6,250 ($10,000 – $3,750)
If your total itemized deductions (including medical expenses, mortgage interest, state and local taxes, and charitable contributions) do not exceed the standard deduction, you may be better off taking the standard deduction instead of itemizing.
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2. What Medical Expenses Are Deductible?
The IRS allows deductions for unreimbursed medical expenses related to the diagnosis, treatment, prevention, or cure of disease.
Qualifying Expenses Include:
- Doctor, dental, and hospital bills
- Prescription medications and insulin
- Health insurance premiums (if paid with after-tax dollars)
- Long-term care services and premiums (subject to limits)
- Vision and hearing aids
- Medical mileage (standard rate for 2024 is 21 cents per mile)
- Nursing home care (if medically necessary)
Non-Deductible Expenses Include:
- Cosmetic procedures (unless medically necessary)
- Over-the-counter medications (except insulin)
- General health and wellness expenses (gym memberships, vitamins)
- Medical expenses reimbursed by insurance or HSA/FSA funds
3. Can You Deduct Health Insurance Premiums?
- Employer-Sponsored Plans: If you pay health insurance premiums through pre-tax payroll deductions, those are not deductible because they were not included in taxable income.
- Self-Employed Individuals: You can deduct 100 percent of your health insurance premiums (including medical, dental, and long-term care) without itemizing if you are self-employed and meet eligibility criteria.
4. Special Considerations for Tax Planning
- Bunching Expenses: If you are close to the deduction threshold, consider bunching medical expenses in a single year. For example, schedule elective procedures or pay outstanding medical bills before year-end.
- Flexible Spending Accounts (FSA) & Health Savings Accounts (HSA): Contributions to FSAs and HSAs are tax-free, and using these accounts can be more beneficial than claiming deductions.
- Medicare and Long-Term Care Premiums: Some Medicare premiums and long-term care insurance premiums may be deductible, subject to limits based on age.
5. How to Claim the Medical Expense Deduction
- Itemize deductions on Schedule A (Form 1040)
- List qualified medical expenses and subtract 7.5 percent of AGI
- Deduct the remaining amount
If your total itemized deductions do not exceed the standard deduction ($15,000 for single filers and $30,000 for married couples in 2025), you will not benefit from itemizing medical expenses.
Bottom Line
Medical expense deductions can provide tax savings if you have high healthcare costs and itemize deductions. However, with the increased standard deduction, fewer taxpayers benefit from itemizing.
If you need help determining whether you should claim medical expenses on your taxes, Whittaker CPAs can help you evaluate your options and maximize your deductions.
Contact us today to discuss your tax strategy.
