The Internal Revenue Code includes two important rules that can limit who truly qualifies for relief from medical expenses:
You must generally itemize deductions on Form 1040 Schedule A rather than take the "standard deduction" if you want a break on medical expenses. If what you plan to deduct for everything (from medical bills to mortgage interest) adds up to less than the standard deduction ($6,300 for singles, $9,300 for heads of household and $12,600 for married joint filers for tax year 2016), there's no point in itemizing.
Most taxpayers can only deduct allowable medical expenses
that exceed 10 percent of "adjusted gross income" (AGI). That's the amount you earn in a given year from wages, investments and other sources minus what you paid for alimony, student-loan interest and a few other things. So, if a married couple has $100,000 AGI and $10,500 of qualified medical expenses, they can deduct only $500--$10,500 minus $10,000 (10 percent of their $100,000 AGI). Seniors age 65 or older can deduct any medical expenses above 7.5 percent of AGI.
Seltzer says the only taxpayers who pass both tests are typically those with unusually high medical expenses relative to income. That's often just the elderly, the unemployed, low-income people or those with big medical bills due to serious illness, in-vitro fertilization or a child's birth.
Are health insurance premiums tax deductible?
Yes, in certain circumstances, you can deduct your health insurance premiums as part of your overall medical expenses.
But you can deduct only premiums that you pay with after-tax money from your own pocket. For example:
If your health insurance premiums are paid entirely by your employer or the government, you cannot deduct the cost.
If you have health insurance through your employer and your share of the premium is deducted from your paycheck pre-tax, you cannot deduct the cost because the premiums were tax-free already. If you don’t know whether you pay pre-tax or after-tax, ask your human resources department.
If you buy health insurance through the state- or federally run health insurance marketplaces, you can deduct only the portion of the premium you pay out of your own pocket. You cannot deduct the amount of any subsidy.
If you buy an individual or family health insurance plan, either on the open market or through a marketplace, and you pay all of the cost out of pocket, then the whole amount is deductible.
Your total medical expenses, including premiums, must surpass 10 percent of your adjusted gross income to be deductible.
For 2016, the self-employed have several deductions and tax credits they can use. For detailed information, visit the self-employed health insurance deduction 2016 section of the federal Affordable Care Act website.
What other medical costs are tax deductible?
Tax deductions 2Assuming you pass the above tests, the IRS lets you write off pretty much every out-of-pocket medical expense that's ordered by a doctor or other health care professional. (See IRS Publication 502 for a list.)
Common items you can deduct from taxes include medical appointments, tests, prescription drugs and durable items like wheelchairs and prescription glasses. In fact, you can even write off unusual expenses as long as they're medically necessary. For instance, one of Seltzer's clients deducted a home lap pool because a serious injury meant the man could only swim for exercise, but couldn't risk colliding with others in a public pool.
You can also deduct transportation expenses for going to the doctor -- parking, tolls, mileage, cab or bus fares -- and even air fare and certain lodging costs for out-of-town treatments.
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