Medical Expenses and Your Taxes
The tax law defines medical expenses as the costs for diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body.
Obviously, this definition covers the costs for health insurance premiums (if they aren't deducted in pre-tax dollars from your paycheck), doctors, hospital stays, diagnostic testing, prescription drugs, and medical equipment. But the IRS also allows for a wide range of costs that may not fit neatly into any of these categories.
If you itemize your personal deductions at tax time instead of claiming the standard deduction, you can deduct a variety of healthcare and medical expenses. But you can't take them all: As of tax year 2020, you can only deduct out-of-pocket expenses that total more than 7.5% of your adjusted gross income (AGI).
- If you've incurred large medical expenses in the past year that were not covered by insurance, you may be able to claim them as deductions on your tax return.
- These costs include health insurance premiums, hospital stays, doctor appointments, and prescriptions.
- Some other eligible costs that may be overlooked include alternative treatments like acupuncture, well-care for newborns, hotel stays for medical visits, and special diets.
- The deduction for tax year 2020 covers expenses in excess of 7.5% of your adjusted gross income.
Easily Overlooked Expenses
- Alternative treatments. Acupuncture is definitely deductible. Other types of alternative treatments may be, too, especially if a doctor orders them.
- Adaptive equipment. The costs of wheelchairs, bath chairs, bedside commodes, and other items needed for a disability or condition are deductible.
- Costs for newborns. No, we don't mean diapers. But breast pumps and other nursing supplies that assist lactation are deductible. If your baby formula requires a prescription, the cost in excess of the cost of the regular formula may be allowed.
- Diabetes-related costs. Blood-testing kits, including blood strips and batteries, are deductible. So, too, is insulin even though it is not technically viewed as a prescription drug.
- Eye- and ear-related conditions. The cost of eye exams, contact lenses, contact lens insurance, and prescription glasses (including sunglasses) is deductible, assuming your insurance doesn't have a vision plan. So, too, is eye surgery like LASIK to correct vision problems. Braille books are also deductible. Those with hearing issues can deduct the costs of exams and hearing aids (including batteries).
- Home improvements. If you install permanent features to accommodate a disability, such as wheelchair ramps and handrails in bathrooms, the cost is fully deductible. However, the cost of renovations in the home to address a health condition is deductible only for costs above any increase they might give to the home’s value. For example, putting in a swimming pool or steam room that costs $25,000 isn't deductible if it would add $30,000 to the worth of your residence.
- Lodging to receive medical treatment. If the treatment is out of town, a hotel stay is deductible up to $50 per night. If a parent must accompany a minor child who is receiving treatment, the per-night dollar limit applies individually to both parent and child (i.e., $100 per night). This deduction only applies to the lodging itself, not meals.
- Attending a medical conference. The cost of admission and transportation to a conference on a chronic condition that the taxpayer or a spouse or dependent suffers from is deductible. However, meals and lodging expenses are not.
- Organ transplants. The costs of the organ recipient are deductible, as are the expenses for the donor (including testing, hospital stay, and transportation).
- Personal attendant costs. For someone unable to manage the tasks of daily living, the cost of caregiving help is deductible. Generally, the deductible portion is limited to personal assistance with daily routines and does not include the cost of house cleaning and other chores, although this may be hard to separate out, realistically speaking. The cost of meals for a personal attendant may be deductible.
- Rehab treatment programs. The cost of in-patient and out-patient treatment programs for alcohol, drug addiction, and other medical problems is deductible.
- Reproduction-related costs. This includes the cost of birth control pills, pregnancy test kits, abortions, vasectomies, and fertility treatments (e.g., in-vitro fertilization or surgery to reverse a vasectomy).
- Service animals. Deductible costs for a seeing-eye dog and other service animals include not only their initial price tag, but also their food, training costs, and vet bills.
- Sex-reassignment surgery and hormone therapy to treat gender identity disorder (GID). These treatments are deductible. However, the cost of breast augmentation surgery, even as part of a gender transition, may not be deductible.
- Smoking-cessation programs/efforts. Deductible costs include doctor-prescribed treatments. Over-the-counter gums, patches, and other such treatments are not covered.
- Special diets. Doctor-prescribed foods to treat a medical condition such as celiac disease, obesity, or hypertension, may be partially deductible. Only the cost that exceeds the cost of regular foods is deductible.
- Special-education costs. Deductibles include programs that address diagnosed physical, mental, or emotional conditions like dyslexia, ADHD, or autism.
- Travel costs to doctors, pharmacies, therapy sessions, etc. You can deduct the cost of cab fare or public transportation. If you use your personal vehicle, you can rely on an IRS-set mileage rate. The rates are set at 17 cents per mile for tax year 2020 and 16 cents per year for tax year 2021. (These are much lower than the allowable rates for business use of a vehicle.) Remember, you must keep accurate records.
- Weight-loss programs. If a doctor can confirm that your current weight is a threat to your health, any weight-loss program that is prescribed is deductible. However, programs for maintaining general good health are not deductible.
- Wigs for cancer patients. People with hair loss due to a medical condition like alopecia or cancer treatments like chemotherapy can deduct the cost of a wig.
The Bottom Line
It's worth tallying up any and all health-related expenses that are not covered by insurance or other reimbursement methods to see if you meet the percentage-of-AGI threshold. That 7.5% threshold, which was set by the Tax Cuts and Jobs Act of 2017, was made permanent at the end of 2020, and will not rise back to 10% in 2021 and beyond.