The tax code underwent a major overhaul in 2018, and as a result, a number of important benefits that Americans once relied on wound up meeting their demise. For example, it used to be that you could deduct the cost of a job-related move, but effective in 2018, that option no longer exists. Similarly, filers once had the option to deduct unreimbursed business expenses that exceeded 2% of their adjusted gross income (AGI), but like the moving expense deduction, that tax break is no longer on the table.
You might therefore be wondering whether you're still allowed to deduct your out-of-pocket medical expenses on your tax return. And the answer, thankfully, is yes. Whether you choose to take advantage of that tax break, however, is a different story.
How the medical expense deduction works
Like all tax deductions, claiming the medical expense deduction allows you to exempt a portion of your income from taxes. For example, if that deduction totals $2,000 for you, it means you don't pay taxes on $2,000 of income.
For the 2018 tax year, you're allowed to deduct medical expenses that exceed 7.5% of your AGI. This means that if your AGI is $60,000, this deduction doesn't even come into play until your medical spending hits $4,501. In other words, if your AGI is $60,000 and you spend $5,000 on medical expenses, you don't get a $5,000 deduction. Rather, you get a $500 deduction.
Furthermore, for the 2019 tax year, you can only claim medical expenses that exceed 10% of your AGI. This means that with a $60,000 salary, you'd need to spend over $6,000 to have a shot at any deduction at all.
Now let's say you're in the midst of filing your 2018 taxes and you realize that you did, in fact, spend more than 7.5% of your AGI on medical bills. You might assume that you'll snag a medical expense deduction, but not so fast -- you can only claim one if you're itemizing on your tax return. If you're claiming the standard deduction, you won't be able to claim your medical expenses (or any other deduction that requires you to itemize, like charitable contributions and mortgage interest).
Of course, at this point you might be thinking: "Well, in that case, I'll just itemize on my return." But that only makes sense if your total itemized deductions exceed the standard deduction you're entitled to. For the 2018 tax year, the standard deduction is $12,000 for single tax filers and $24,000 for married couples filing jointly. If you're married and can claim $10,000 in mortgage interest for 2018, $10,000 in state and local taxes (which is what that deduction is capped at), and $4,000 in charitable contributions, then it pays to itemize and snag even a small medical expense deduction, since you'll come out ahead financially.
But let's say you're looking at a $1,000 medical expense deduction but you only spent $6,000 on mortgage interest, $8,000 on state and local taxes, and $1,000 on charity. In that case, itemizing would give you a $16,000 deduction, whereas claiming the standard deduction as a couple would give you $24,000. The latter is obviously a no-brainer.
Not only is the medical expense deduction hard to qualify for, due to the fact that your spending must exceed 7.5% or 10% of AGI, but it's also a tax break reserved for folks who itemize. Therefore, don't count on being able to claim it -- even if you feel you spend quite a small fortune on healthcare.