Jeffrey Wade
If you have medical bills that your insurance doesn't fully cover, you may be able to deduct the remaining costs from your taxes. The Internal Revenue Service (IRS) allows taxpayers to deduct their total qualified unreimbursed medical care expenses that exceed 7.5% of their adjusted gross income (AGI). This includes unreimbursed expenses for preventative care, treatment, surgeries, dental and vision care, and visits to psychologists and psychiatrists. However, it's important to note that you can only deduct these expenses if you itemize your deductions on Schedule A (Form 1040) instead of taking the standard deduction. Additionally, you can't include insurance premiums paid by an employer-sponsored health insurance plan or pre-tax salary contributions you make to such a plan. Self-employed individuals with a net profit for the year may be eligible for the self-employed health insurance deduction, which is an adjustment to income rather than an itemized deduction.
| Characteristics | Values |
|---|---|
| Can I deduct medical expenses from my PPO insurance? | Yes, if they exceed 7.5% of your adjusted gross income (AGI) and you itemize your deductions on Schedule A (Form 1040) instead of taking the standard deduction. |
| What expenses can I deduct? | Unreimbursed expenses for preventative care, treatment, surgeries, dental and vision care, visits to psychologists and psychiatrists, prescription medications, appliances (e.g. glasses, contacts, false teeth, hearing aids), and travel expenses for medical care. |
| What expenses cannot be deducted? | Cosmetic procedures, non-prescription drugs (except insulin), purchases for general health (e.g. toothpaste, vitamins, diet food), and employer-sponsored health insurance premiums. |
| Self-employed individuals | May be eligible for the self-employed health insurance deduction for premiums paid on a health insurance policy covering medical care for themselves, their spouse, dependents, and children under 27. |
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What You'll Learn
Self-employed health insurance deduction
If you have medical bills that aren't fully covered by your insurance, you may be able to take a deduction for those to reduce your tax bill. The IRS allows you to deduct unreimbursed expenses for preventative care, treatment, surgeries, and dental and vision care as qualifying medical expenses. You can also deduct unreimbursed expenses for visits to psychologists and psychiatrists. Unreimbursed payments for prescription medications and appliances such as glasses, contacts, false teeth, and hearing aids are also deductible. The IRS also lets you deduct the expenses that you pay to travel for medical care, such as mileage on your car, bus fare, and parking fees.
The cost of any COVID-19 treatment is also tax-deductible as an itemized deduction. However, this deduction only applies if you have any medical treatment expenses or related travel expenses that haven't been reimbursed. Any medical expenses that have been reimbursed, such as by your insurance or employer, cannot be deducted.
If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents. This is known as the self-employed health insurance deduction. This deduction is only applicable if you have a net profit for the year and are not eligible to participate in an employer-subsidized health plan. If you are eligible, you may deduct up to 100% of the health insurance premiums you paid during the year on your income tax return.
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Medical expenses exceeding 7.5% of adjusted gross income
The IRS allows taxpayers to deduct their total qualified unreimbursed medical care expenses that exceed 7.5% of their adjusted gross income (AGI). This applies to expenses not compensated by insurance or otherwise, regardless of whether you receive the reimbursement directly or payment is made on your behalf to the medical provider.
To calculate the amount you can deduct, multiply your AGI by 0.075 (7.5%) and then subtract this from your total medical expenses for the year. The resulting amount can be included on your Schedule A, Itemized Deductions. For example, if your AGI is $45,000 and your medical expenses for the year are $5,475, you would multiply $45,000 by 0.075 to get $3,375. Subtracting $3,375 from $5,475 leaves you with a medical expense deduction of $2,100.
Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body. This includes unreimbursed expenses for preventative care, treatment, surgeries, dental and vision care, visits to psychologists and psychiatrists, prescription medications, appliances such as glasses, contacts, false teeth and hearing aids, and expenses that you pay to travel for qualified medical care.
If you are self-employed and have a net profit for the year, you may be eligible for the self-employed health insurance deduction. This is an adjustment to income, rather than an itemized deduction, for premiums you paid on a health insurance policy covering medical care, including a qualified long-term care insurance policy for yourself, your spouse, and dependents. The policy can also cover your child who is under the age of 27 at the end of the year, even if the child is not your dependent.
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Deducting unreimbursed medical expenses
If you have medical bills that aren't fully covered by your insurance, you may be able to take a deduction for those to reduce your tax bill. The IRS allows you to deduct unreimbursed expenses for preventative care, treatment, surgeries, dental and vision care, visits to psychologists and psychiatrists, prescription medications, and appliances such as glasses, contacts, false teeth, and hearing aids. You can also deduct the expenses that you pay to travel for medical care, such as mileage on your car, bus fare, and parking fees.
The deduction value for medical expenses varies because the amount changes based on your income. The IRS allows all taxpayers to deduct their total qualified unreimbursed medical care expenses that exceed 7.5% of their adjusted gross income (AGI) if the taxpayer uses IRS Schedule A to itemize their deductions. Your AGI is your total income subject to tax from your tax return minus any adjustments to income, such as contributions to a traditional IRA and deductible student loan interest. For example, if you have an AGI of $45,000 and $5,475 of medical expenses, you would multiply $45,000 by 0.075 (7.5%) to find that only expenses exceeding $3,375 can be included as an itemized deduction. This leaves you with a medical expense deduction of $2,100 ($5,475 minus $3,375). This amount can be included on your Schedule A, Itemized Deductions.
You can include in medical expenses insurance premiums you pay for policies that cover medical care. You can't include insurance premiums that were paid and for which you are claiming a credit or deduction. If you're self-employed and have a net profit for the year, you may be eligible for the self-employed health insurance deduction. This is an adjustment to income, rather than an itemized deduction, for premiums you paid on a health insurance policy covering medical care, including a qualified long-term care insurance policy for yourself, your spouse, and dependents.
Deductible medical expenses may include but are not limited to the following:
- Amounts paid in fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners
- Amounts paid for inpatient hospital care or residential nursing home care, if the availability of medical care is the principal reason for being in the nursing home, including the cost of meals and lodging charged by the hospital or nursing home
- Amounts paid for acupuncture treatments
- Amounts paid for inpatient treatment at a center for alcohol or drug addiction; amounts paid for participation in a smoking-cessation program and for prescription drugs to alleviate nicotine withdrawal
- Amounts paid for admission and transportation to a medical conference relating to a chronic illness of you, your spouse, or your dependent (if the costs are primarily for and essential to necessary medical care). However, you may not deduct the costs for meals and lodging while attending the medical conference
- Amounts paid for false teeth, reading or prescription eyeglasses, contact lenses, hearing aids, a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities, crutches, and wheelchairs
- Amounts paid for transportation primarily for and essential to medical care that qualifies for the medical expense deduction. Amounts paid for transportation include your out-of-pocket expenses for your personal car, such as gas and oil, or the standard mileage rate for medical expenses, plus the cost of tolls and parking; taxi, bus, or train fare; and ambulance costs
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Deducting insurance premiums
If you have a Preferred Provider Organization (PPO) insurance plan, you may be able to deduct medical expenses that are not covered by your insurance. This includes unreimbursed expenses for preventative care, treatment, surgeries, and dental and vision care. However, it's important to note that you can only deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI).
Now, let's discuss deducting insurance premiums specifically:
If you are self-employed and purchase health insurance for yourself, your spouse, and your dependents, you may be able to deduct the premiums you pay on a health insurance policy covering medical care. This includes qualified long-term care insurance policies. To claim this deduction, you must have a net profit for the year. This deduction is an adjustment to income rather than an itemized deduction.
If you are a business partner or a member of a Limited Liability Company (LLC) who is treated as a partner for tax purposes, you can deduct the health insurance premiums you pay directly. Even if the partnership or LLC pays the premiums, you can still claim the deduction for the premiums paid for your coverage by following special reporting rules.
If you are insured through the Health Insurance Marketplace, you can deduct the full cost of your health care premiums from your taxable income, even if you don't itemize your taxes. However, this deduction is only applicable if neither you nor your spouse were eligible to participate in an employer-subsidized health plan during the period for which you are claiming the deduction.
It's important to note that you cannot include insurance premiums paid by an employer-sponsored health insurance plan as a deduction unless they are included on your Form W-2, Wage, and Tax Statement. Additionally, if you use Health Savings Account (HSA) funds to pay for premiums or expenses, these are generally not eligible for a deduction.
When it comes to deducting insurance premiums, it's always a good idea to consult a tax professional or a financial advisor to understand the specific rules and criteria that apply to your situation.
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Deducting medical expenses for spouse or dependents
You can deduct the medical and dental expenses you paid for your spouse and your dependents during the taxable year, but only if these expenses exceed 7.5% of your adjusted gross income for the year. This includes expenses for the decedent's spouse and dependents as well as for the decedent. The survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent's estate for the decedent's medical care as paid by the decedent at the time the medical services were provided. The expenses must be paid within the 1-year period beginning with the day after the date of death.
You can include in medical expenses the amounts you pay to entitle you, your spouse, or a dependent to receive medical care from an HMO. These amounts are treated as medical insurance premiums. You can also include the cost of a hearing aid and batteries, repairs, and maintenance needed to operate it. You can include in medical expenses amounts you pay for the cost of inpatient care at a hospital or similar institution if a principal reason for being there is to receive medical care. This includes amounts paid for meals and lodging. You can also include in medical expenses insurance premiums you pay for policies that cover medical care. You can't include in medical expenses insurance premiums that were paid and for which you are claiming a credit or deduction.
You can deduct the cost of admission and transportation to a medical conference if the event is related to your, your spouse's, or your dependent's chronic illness. Most of the time that you spend at the conference must be for attending sessions on medical information. Note that meals and lodging expenses are not deductible. Medical expenses for the care you received as a donor or a possible donor of a kidney or other organ are deductible. Similarly, you can include any expenses that you pay for the medical care of a donor in connection with the donation of an organ to you, your spouse, or your dependent. Transportation costs related to the transplant are included. For someone unable to manage activities of daily living (ADL), the cost of a personal attendant is deductible.
If you're self-employed and have a net profit for the year, you may be eligible for the self-employed health insurance deduction. This is an adjustment to income, rather than an itemized deduction, for premiums you paid on a health insurance policy covering medical care, including a qualified long-term care insurance policy for yourself, your spouse, and dependents. The policy can also cover your child who is under the age of 27 at the end of the year even if the child wasn't your dependent.
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