What Are Medical Expenses?

Medical expenses are any costs incurred in the prevention or treatment of injury or disease. Medical expenses include health and dental insurance premiums, doctor and hospital visits, co-pays, prescription and over-the-counter drugs, glasses and contacts, crutches, and wheelchairs, to name a few. Medical expenses that are not reimbursed are deductible within certain limits

Key Takeaways

  • Medical expenses are the costs to treat or prevent an injury or disease, such as health insurance premiums, hospital visits, and prescriptions.
  • These expenses are tax-deductible within certain limits.
  • For example, taxpayers with group health insurance coverage are generally not allowed to deduct medical expenses.
  • Only those who itemize their deductions are eligible to claim any medical expenses on Schedule A, and only those expenses that exceed 10% (7.5% for 2017 and 2018) of the taxpayer's adjusted gross income (AGI) can be deducted.

Understanding Medical Expenses

Taxpayers with access to group health insurance coverage are seldom able to deduct medical expenses that are not reimbursed on their taxes. Only those who itemize their deductions are eligible to claim any medical expenses on Schedule A. Furthermore, only those expenses that exceed 7.5% of the taxpayer's adjusted gross income (AGI) can be deducted.

Special Considerations

The medical expense deduction is an itemized deduction, which means it can only be used if someone turns down the standard deduction to claim it. In 2020, the standard deduction will be $18,650, which means most taxpayers won't want to itemize. 

For tax years starting Jan. 1, 2019, all taxpayers are only able to deduct the unreimbursed medical expenses for the year that exceeds 10% of their adjusted gross income.

Example of Medical Expenses

Here's how someone deducts medical expenses from their taxes. First, calculate AGI by following instructions found on the first page of Form 1040. Take the result of that calculation and calculate 10% (7.5% for the years 2017 and 2018) that number. Subtract this result from total medical expenses for the year. The amount that's leftover is the amount you can deduct for medical expenses.

Tax reform that passed at the end of 2017 boosted this deduction by reducing the AGI percentage you subtract to 7.5% from 10%. However, this provision is only good for 2017 and 2018. At this rate, many taxpayers will be able to claim larger deductions for medical expenses. Starting in the tax year 2019, the rate returns to 10%.

For example, consider that Tom's AGI for 2017 was $80,000, and he had $10,000 in medical expenses. Using the AGI limit of 10%, he would subtract 10% of $80,000, or $8,000, from your $10,000 in medical expenses to get a result of $2,000—and that would be the figure he could claim as a medical expense deduction.

With the tax reform to the AGI limit for medical deductions, Tom can subtract 7.5% of his AGI, which in this example is $6,000. Tom can now claim $4,000 in medical expenses instead of $2,000. This new percentage means Tom can effectively double his medical expense deduction for the 2017 year, compared to 2016.