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 (see below).
Breaking Down 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 the Schedule A. Furthermore, only those expenses that exceed 7.5 percent of the taxpayer's adjusted gross income (AGI) can be deducted.
Deducting Medical Expenses from Taxes
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 7.5 percent that number. Subtract this result from total medical expenses for the year. The amount that's left over 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 percent from 10 percent. 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.
For example, consider that Tom's AGI for 2017 was $80,000, and he had $10,000 in medical expenses. Using the old AGI limit of 10 percent, he would subtract 10 percent 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 this latest revision to the AGI limit for medical deductions, Tom can subtract 7.5 percent of your 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.
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 2018, the standard deduction will nearly double, which means most taxpayers won't want to itemize. Beginning Jan. 1, 2019, all taxpayers will only be able to deduct the unreimbursed medical expenses for the year that exceeds 10% of their adjusted gross income.