When you incur big medical costs during the year, these expenditures can be a big hit to your budget. For some taxpayers, these expenses can be partly defrayed by taking a tax deduction for some of the amount spent on care.
A tax deduction allows you to reduce your taxable income so you don't pay taxes on the value of the deduction. If you deduct $10,000 in medical expenses from $50,000 in taxable income, you'd be taxed on just $40,000. If you're in the 22% tax bracket, not paying taxes on $10,000 in income because of your deduction would save you $2,200.
Unfortunately, not every taxpayer will be able to deduct medical expenses. There are certain requirements to do so. This guide will help you figure out if you can deduct your medical expenses on your 2018 taxes.
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Who can deduct medical expenses on 2018 taxes?
For the 2018 tax year, you can deduct only the portion of your medical expenses that exceeds 7.5% of adjusted gross income. For the 2019 tax year, this threshold changes and you can only deduct medical expenses that exceed 10% of adjusted gross income.
Your adjusted gross income (AGI) is calculated by taking your gross income (the total you earned) and subtracting adjustments from it. Adjustments include contributions to tax-deductible retirement accounts such as IRAs, contributions to a health savings account, as well as up to a $2,500 deduction for student loan interest. Not all deductions you take are subtracted from gross income to calculate adjusted gross income. It's only a limited number of above-the-line deductions that are used to calculate your AGI.
If your gross income is $50,000 and you make $5,000 in IRA contributions and pay $2,500 in deductible student loan interest, your AGI would be $42,500. Your medical expenses would need to exceed 7.5% of $42,500 (that is, be greater than $3,187.50) in order for you to deduct any portion of your care costs from your taxable income. So, if you incurred $5,000 in medical expenses, you'd be able to deduct $5,000 minus $3,187.50, or $1,812.50, in medical care expenditures.
You have to itemize to claim the medical expense deduction
In order for you to be able to deduct your medical expenses, you must itemize on your tax return instead of claiming the standard deduction. Itemizing makes sense only for a limited number of taxpayers starting in tax year 2018 because the Tax Cuts and Jobs Act almost doubled the standard deduction for this tax year.
The table below shows the standard deduction, based on filing status, for tax years 2018 and 2019:
|
Tax Filing Status |
2018 Standard Deduction |
2019 Standard Deduction |
|---|---|---|
|
Married filing jointly |
$24,000 |
$24,400 |
|
Head of household |
$18,000 |
$18,350 |
|
Other tax filing statuses |
$12,000 |
$12,200 |
Source: IRS.
If the total value of your itemized deductions -- including the deduction for medical expenses, mortgage interest, and state and local taxes -- doesn't exceed the amount of the standard deduction, it doesn't make sense to itemize. For many taxpayers with high medical expenses, the amount that could be deducted simply isn't enough to make itemizing worth it.
Only certain medical expenses count
It's also important to make sure any medical expenses you are trying to deduct are actually deductible. The IRS has a list of expenses you can deduct including:
- Fees paid to doctors, surgeons, dentists, chiropractors, mental health professionals, and non-traditional medical practitioners.
- Fees paid for in-patient hospital care.
- Nursing-home fees if you have a medical reason to be in the nursing home.
- Acupuncture costs.
- Costs of in-patient treatment for addiction.
- Fees for weight-loss programs if you participate because of a diagnosis of a disease by a doctor, including obesity.
- Payments for prescription drugs and for insulin.
- The costs of traveling to a medical conference related to a chronic illness you or a dependent has, if the costs are incurred for essential care.
- Payment for most types of dentistry, including false teeth.
- Payment for prescription eyeglasses or contact lenses.
- The costs of a certified trained guide dog for a visually impaired person, hearing disabled person, or other disabled person.
- Payments for health insurance or long-term care.
However, you can't generally take any deduction for costs reimbursed by an insurance provider, nor for elective or cosmetic procedures. You should keep the receipts for any expenses you deduct so you can prove you incurred the costs you're claiming.
Deducting medical expenses could save you money -- under the right circumstances
If your medical expenses exceed 7.5% of income and it makes sense for you to itemize, deductible medical expenses can cut your tax bill. For many taxpayers, though, it simply won't be possible in 2018 either because it makes no sense to itemize or because your expenses don't exceed the threshold to claim the deduction.
In any case, do the math to find out if you can take this deduction, because you don't want to pass it up if you're eligible.
