Income Taxes: Deducting Health Related Expenses

Written by  //  January 12, 2011  //  Tax Tips  //  2 Comments

If you itemize your tax return, you can deduct health insurance and related costs when you file your return. Medical expenses of all kinds can be deducted ranging from visits to your physician, hospital costs, dental, vision and certain wellness programs. You will be using Schedule A with Form 1040 to determine what expenses you can include on your tax return this year.

Definition

The IRS offers stringent guidelines to define medical expenses. The IRS defines medical expenses as “…the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body.” Medical expenses include those payments you make for legal medical services given by doctors, surgeons, dentists, and other medical professionals. These expenses can include the costs of equipment, supplies, and diagnostic tools related to your visits.

Eligibility

Health insurance and other medical expenses can be deducted only if you itemize your tax return and meet a specific IRS criteria for claiming deductions. Fill out Schedule A of your tax return and take note of line 38 on that form. If your total medical and dental expenses exceed 7.5 percent of your adjusted gross income for the year, then you can deduct your expenses. For example, if your income is $50,000 for the year, then your medical expenses must exceed $3,750 — you can deduct expenses above that amount only. If your expenses are not high enough, you can take the standard deduction instead.

Insurance Premiums

The IRS offers detailed information in Publication 502 on what medical expenses you may include on your tax return. Health insurance premiums are part of your medical costs and can be deducted. You can also deduct what you pay for a prescription plan, dental insurance, vision insurance and for long-term care. An insurance policy you have on your contact lenses can also be deducted. If you are self employed, 100 percent of your health insurance can be deducted according to MSN Money.

Included Expenses

In addition to specific health insurance premiums, taxpayers can deduct visits to their doctor, dentist and eyecare professional. Among the many included expenses you can deduct are hearing aids, crutches, dental treatment, medicines, eye surgery, fertility enhancement, help for drug addiction, stop-smoking programs, a prosthesis, an organ transplant and laboratory fees. You may also be able to deduct expenses related to medical help including transportation, certain legal fees and a wheelchair.

Exclusions

Not every insurance plan can be deducted on your income taxes. Exclusions include life insurance premiums, a policy covering the loss of earnings, any part of your auto insurance offering medical insurance for you or other party, policies for loss of limb, hearing and eyesight and taxes such as Medicare cannot be deducted. Not includable expenses include teeth whitening, cosmetic surgery, nutritional supplements, swimming lessons and maternity clothes.

Considerations

You may want to work with an accountant or tax preparation professional to find out what medical deductions you can take beyond your health and other insurance premiums. Under certain conditions, if your reimbursements are larger than your medical expenses, you may have to include that excess in your income. Your state tax return may have different guidelines for deduction health insurance premiums and other medical expenses.

References/Resources

Kiplinger: Deducting Health Insurance Premiums

Bankrate: Maximizing Your Medical Deductions

The Wall Street Journal: Insurance Tax Breaks for Self-Employed Individuals

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