It is no surprise that the cost of medical and dental procedures has been on the rise. Even worse, some procedures may not be covered by insurance. This can leave the patient with a large bill to pay that wasn't anticipated in the monthly budget. The money spent on medical care can take away from other important obligations such as housing, food and childcare. It is possible to deduct the costs of medical and dental expenses from federal taxes owed? The answer is yes, under the right circumstances and subject to certain limitations.
Generally, the Internal Revenue Code allows as a deduction the expenses paid during the tax year, not reimbursed by insurance, for medical care of the taxpayer, his or her spouse, or a dependent, to the extent that such expenses exceed 10% of adjusted gross income. 26 U.S.C. §213(a). For example, if your adjusted gross income for 2019 was $100,000.00 and your unreimbursed medical expenses are $15,000.00, then you are only entitled to deduct $5,000.00 of medical expenses (this is the amount above the 10% AGI floor of $10,000.00).
"Medical care" means amounts paid for the following:
- "For the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body." 26 U.S.C. §213(d)(1)(A).
- "For transportation primarily for and essential to" medical diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. 26 U.S.C. §213(d)(1)(B).
- For qualified long-term care services (meaning necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance or personal care services which are required by a chronically ill individual and are provided pursuant to a care plan prescribed by a licensed health care practitioner). 26 U.S.C. §213(d)(1)(C). This does not included payments made for services provided by spouses or dependents unless the service is provided by a licensed professional. 26 U.S.C. §213(d)(11)).
- For insurance covering the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body OR for any qualified long-term care insurance contract. 26 U.S.C. §213(d)(1)(D).
- For lodging (not lavish or extravagant under the circumstances) while away from home primarily for and essential to the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body IF the medical care is provided by a physician in a licensed hospital or medical facility AND there is no significant element of personal pleasure, recreation, or vacation in the travel away from home (BUT not to exceed $50 per night per each individual). 26 U.S.C. §213(d)(2).
- Amounts paid during the tax year for medicine or drugs are only taken into account if it either insulin or a prescribed drug. 26 U.S.C. §213(b).
According to IRS Publication 502 (2018), the Internal Revenue Service has allowed medical tax deductions for expenses that include, but are not limited to, the following:
- Alcoholism treatment (including inpatient treatment and transportation to both Alcoholics Anonymous meetings and outpatient treatment if directed by medical advice).
- Ambulance expenses.
- Artificial limbs.
- Artificial teeth.
- Birth control pills (if prescribed by a doctor)
- Body scans.
- Braille books and magazines for visually impaired persons that cost more than regularly printed editions.
- Breast pumps and supplies that assist lactation.
- Breast reconstruction surgery (following a mastectomy for cancer treatment).
- Capital expenses for special equipment installed in a home or improvements if the main purpose is medical care or to accommodate a disabled condition (e.g. entrance and exit ramps, widening doorways, installing railings, lowering cabinets, installing railings in bathrooms, porch lifts, etc.).
- Car modifications for disabled persons (e.g. special hand controls).
- Christian Science practitioner.
- Contact lenses.
- Dental treatment including preventive services and treatment of disease (e.g. teeth cleaning, sealants, fillings, extractions, etc.) BUT exclude teeth whitening.
- Diagnostic devices (e.g. blood sugar test kit for diabetes)
- Drug addiction treatment (e.g. inpatient treatment at a therapeutic center).
- Eye exams.
- Eye surgery to treat defective vision (e.g. laser eye surgery or radial keratotomy).
- Fertility enhancement, including in vitro fertilization and reversing vasectomies.
- Guide dogs or other service animals (including expenses for food, grooming and veterinarian care).
- Hearing aids.
- Hospital services or health institute services if the principal reason for being there is medical care.
- Insurance premiums paid for policies that cover medical care (including premiums paid for Medicare A, Medicare B and Medicare D) BUT NOT premiums paid for life insurance, lost earnings or car insurance.
- Laboratory fees.
- Lead-based paint removal from surfaces of the taxpayer's home to prevent child from consuming the paint (surfaces must be peeling and cracking or within the child's reach).
- Legal fees paid to authorize treatment for mental illness (e.g. petition for involuntary hospitalization in probate court) BUT NOT legal fees paid for the management of a guardianship or conservatorship estate.
- Lifetime care fees (or "founder's fee") paid monthly or as a lump sum under an agreement with a retirement home.
- Meals at a hospital or similar institution if a principal reason for being there is medical care.
- Medical conferences (including admission, lodging and transportation) if it concerns the chronic illness of yourself, your spouse or dependent. The majority of the time at the conference must be spend attending sessions on medical information.
- Nursing home services.
- Nursing services at home or another care facility (including services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient) but excludes time and expense spent on household and personal services. The employment taxes paid for the nurse (including social security and Medicare taxes) are also deductible.
- Oxygen and oxygen equipment to relieve breathing problems caused by a medical condition.
- Physical examinations (including annual physicals and diagnostic tests).
- Pregnancy test kits.
- Psychiatric care (including the cost of supporting a mentally ill dependent at a specially equipped medical center where medical care is received).
- Special education expenses paid on a doctor's recommendation for a child's tutoring by a teacher who is specially trained and qualified to work with children who have learning disabilities caused by mental or physical impairments, including nervous system disorders.
- Sterilization, including vasectomies.
- Stop-smoking programs, EXCEPT for amounts paid for drugs not requiring a prescription such as nicotine gum or patches.
- Surgery, if non-cosmetic and medically beneficial.
- Telephone equipment to aid persons who are deaf or hard of hearing.
- Therapy received as medical treatment.
- Transplant expenses incurred as a donor or possible donor of a kidney or other organ.
- Weight-loss programs if related to a specific disease diagnosed by a physician (e.g. obesity, hypertension or heart disease) BUT NOT the cost of gym memberships or diet food.
- Wigs purchased on advice of a physician for the mental health of a patient who has lost all of his or her hair from disease.
- X-Rays for medical or dental reasons.
Deductible medical expenses may include the treatment of transgender issues. In O'Donnabhain v. Commissioner, 134 T.C. 34 (2010), the U.S. Tax Court determined that taxpayer diagnosed with gender identity disorder was entitled to deduct sex reassignment surgery costs as necessary medical expenses under 26 U.S.C. §213. The Internal Revenue Service disallowed the deduction when it found the expense to be controversial and medically unnecessary. The Tax Court ruled that the IRS's position to deny this deduction was "at best a superficial characterization of the circumstances" that is "thoroughly rebutted by the medical evidence".
"Medical care" DOES NOT include "cosmetic surgery or other similar procedures, unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease." 26 U.S.C. §213(d)(9)(A). This prohibition excludes procedures such as face lifts, hair transplants, hair removal and liposuction.
According to IRS Publication 502 (2018), the Internal Revenue Service DISALLOWS tax deductions for expenses that include, but are not limited to, the following:
- Babysitting, child care or nursing services for a healthy baby.
- Controlled substances illegal under federal law (even if permitted under state law) such as medical marijuana.
- Diaper services.
- Funeral expenses.
- Future medical care to be provided beyond the end of the tax year.
- Health Savings Account (HSA) contributions.
- Household help.
- Illegally imported drugs and medicines.
- Illegal operations and treatments, whether rendered or prescribed by licensed or unlicensed practitioners.
- Insurance premiums paid by or through the premium tax credit (PTC) or health coverage tax credit (HCTC).
- Maternity clothes.
- Medical Savings Account (MSA) contributions.
- Nonprescription drugs and medicines.
- Nutritional supplements.
- Personal use items (e.g. toothbrushes and floss).
- Veterinary fees (unless for service animal).
Medical care generally does not include expenses spent on activities meant to generally improve the quality of life such as swimming, dancing or gym memberships. In Commissioner v. Bilder, 369 U.S. 499 (1962), a taxpayer attempted to deduct as an expense for "medical care" the rent paid for an apartment in Florida when he was ordered by his physician to spend the winter months in Florida as part of his health care treatment. The U.S. Supreme Court determined that this was not a "medical care" expense deductible under 26 U.S.C. §213. If travel is undertaken merely for the general improvement of the taxpayer's health and not for being away from home to receive medical treatment, then both the lodging and meals are not deductible. To be considered a deductible medical expense, the activity must be directly related to the diagnosis treatment of a particular ailment and at the direction of a licensed professional.
Medical expenses paid before death by a deceased taxpayer may be included on the decedent's final income tax return, including those incurred for the spouse and any dependents. In addition, the personal representative may deduct expenses for the medical care of the deceased taxpayer paid out of his or her estate during the one-year period beginning with the day after death as if they were paid by the taxpayer at the time the expense was incurred. 26 U.S.C. §213(c)(1). This may require the personal representative filing an amended final income tax return for the decedent to capture these expenses (assuming they will not be included on any possible estate tax return).
For tax years beginning after December 31st, 2012 and ending before January 1st, 2017, a reduced 7.5% of adjusted gross income floor for medical expenses applied if a taxpayer or the taxpayer's spouse had reached age 65 before the close of the tax year. For tax years beginning after December 31st, 2016 and ending before January 1st, 2019, the 7.5% of adjusted gross income floor for medical expenses applied to ALL taxpayers. 26 U.S.C. §213(f). In addition, the rule limiting the medical expense deduction for alternative minimum tax purposes to 10% of AGI doesn't apply to tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019. 26 U.S.C. 56(b)(1)(B). All thresholds are restored to the 10% AGI floor for tax years 2019 and beyond.
The burden is on the taxpayer to substantiate his or her claimed medical expense deductions and keep adequate records. For example, a taxpayer wishing to deduct transportation costs associated with seeking medical attention should keep mileage logs and written records of where the trip originated, where it ended and what vehicle was used. The taxpayer should keep all invoices and receipts from medical procedures, prescription purchases and medical equipment. If the IRS audits your return and you are unable to prove your expense, then your deductions will be disallowed and you may be liable for penalties and interest on the unpaid tax assessed.
To claim medical expenses, taxpayers must elect to itemize their deductions on Schedule A of Form 1040. Taxpayers that elect to claim the standard deduction will not be entitled to separately deduct medical expenses. You may have to calculate your tax obligations by both using the standard deduction method and itemizing your expenses to determine which will yield the greater return. It may pay to utilize the services of a tax professional to figure out how to get the best value out of your unique situation.
If you have questions about medical expense deductions or any other aspect of federal taxation, then do not hesitate to contact the attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.