Individuals with big medical bills got a tax win in late 2020. Taxpayers who itemize on Schedule A can continue to deduct qualifying medical expenses to the extent that the total amount exceeds 7.5% of adjusted gross income. The AGI threshold was scheduled to climb to 10% beginning in 2021, but instead, Congress permanently kept the 7.5% threshold.
You can claim medical expenses that are not reimbursed by insurance for yourself, a spouse and your dependents. To qualify as a deduction, the expense must be incurred primarily to alleviate or prevent a physical or mental disability or illness.
The broad list of eligible expenses includes out-of-pocket payments for medical services rendered by doctors, dentists, optometrists and other medical practitioners; mental health services; health insurance premiums (including Medicare Parts B and D); annual physicals; prescription drugs and insulin (but not over-the-counter drugs); hearing aids; and transportation to and from the doctor’s office. But cosmetic surgery to improve your general appearance, hair transplants and teeth whitening are not eligible. For more information, about what qualifies, see IRS Publication 502.
Long-Term Care and Insurance
If you or your spouse requires long-term care, you may be able to deduct the unreimbursed cost for in-home care, assisted living and nursing home services as medical expenses. The long-term care must be medically necessary for a chronically ill person. A person is considered chronically ill when at least two activities of daily living cannot be performed without help for 90 days or more. Anyone in need of long-term care because of dementia or another cognitive impairment is also considered chronically ill if substantial supervision is needed to protect the individual’s health and safety. The chronic illness must be certified by a licensed health care practitioner. The cost of meals and lodging at an assisted living facility or a nursing home also counts if you are there mainly for medical care.
If you purchased a long-term-care insurance policy, a portion of your premium payment qualifies as a medical expense. The deduction is capped based on age. For 2020 returns, the maximum per-person limits are $5,430 for taxpayers 71 or older, $4,350 for taxpayers 61 to 70, $1,630 for individuals who are 51 to 60, $810 for people 41 to 50 and $430 for those 40 and younger. These amounts are a bit higher for 2021: $5,640, $4,520, $1,690, $850 and $450, respectively.
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Home Improvements
The cost of certain home improvements to accommodate a disability or physical illness may also be deducted as a medical expense—for instance, ramps, wide doorways or entrances, railings and wheelchair lifts. But an elevator is generally not deductible because it adds value to the house.
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Weight Loss Programs
Weight reduction programs that are ordered by doctors to treat obesity or hypertension or alleviate another ailment are deductible medical expenses.
Diet foods, weight loss supplements or reduced-calorie beverages, however, are not. A weight reduction plan to improve your appearance doesn’t count either.
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Expenses for Service Dogs
Veterinary costs for a service dog to assist the visually impaired and others with physical disabilities are eligible medical deductions. The same is true for the cost to buy and train the dog, plus feed and groom it. An emotional support animal also counts if it’s needed primarily to alleviate a mental disability or illness.
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Genetic Testing
If you use a DNA ancestry company for genetic health testing, such as 23andMe, the portion of the DNA collection kit’s cost that pertains to genetic testing may be treated as a deductible medical expense.
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Deductions for Self-Employed Workers
Self-employed individuals get an even greater tax benefit. They can deduct the cost of health insurance and long-term-care premiums (subject to the age caps above) for themselves, a spouse and any dependents, regardless of whether they itemize on Schedule A. The costs can be claimed on Form 1040, Schedule 1, line 16, without regard to the 7.5% threshold.
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