Medical Expenses Deductions Checklist

Zane Benefits writes: If you or your clients paid a lot for health care in the last year, many of those expenses could qualify as a deduction from your taxable income on Form 1040, Schedule A. Use this checklist to determine which medical expenses you can take as a deduction on your income tax return.

Medical Expense Deduction Tips

• You have to itemize deductions to claim these expenses.
• Medical expenses are only deductible to the extent that they exceed 10% of your Adjusted Gross Income (AGI). If your AGI is $75,000, for example, the first $7,500 of qualified expenses (10% of $75,000) don’t really count for deduction purposes.
• However, if you're older than 65 years old there is a temporary exemption to the 10% rate. If you or your spouse are 65 years or older, or turned 65 during the tax year, you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.

Medical Expenses Deductions Checklist

The IRS offers the list for qualified medical expenses. We've included a partial list of qualified medical expenses below. For the complete list, see IRS Publication 502.

• Acupuncture
• Air conditioner necessary for relief from allergies or other respiratory problems (less any increase in the value of your home resulting from installation of air conditioning)
• Alcoholism treatment, including inpatient treatment, meals and lodging at a therapeutic center for alcohol addiction
• Artificial limbs
• Artificial teeth
• Birth control pills prescribed by a doctor
• Braille books and magazines used by a visually-impaired person
• Contact lenses, including equipment and materials for using contacts
• Doctor or physician expenses
• Drug addiction treatment, including in-patient treatment, meals and lodging at a therapeutic center for drug addiction
• Elastic hosiery to treat blood circulation problems
• Exercise program if a doctor has recommended it as treatment for a specific condition
• Eye surgery, such as Lasik or a similar procedure, when it is not for cosmetic purposes only
• Guide dog or other animal used by a visually-impaired, hearing-impaired or otherwise physically disabled person
• Hospital care
• Household help for nursing care services only
• Insurance premiums for medical care coverage
• Laboratory fees
• Lead-based paint removal, including the cost of removing lead-based paints from surfaces when a child has lead poisoning or was previously diagnosed with lead poisoning. (Does not include the cost of repainting.)
• Legal fees paid to authorize treatment for mental illness
• Lifetime care advance payments
• Lodging expenses while away from home to receive medical care in a hospital or medical facility
• Long-term care insurance and long-term care expenses (there are limitations to what you can deduct)
• Mattresses and boards bought specifically to alleviate an arthritic condition
• Medical aids, including wheelchairs, hearing aids and batteries, eyeglasses, contact lenses, crutches, braces and guide dogs (and their care)
• Medicines and drugs
• Nursing care
• Nursing home expenses, including the entire cost of medical care, plus meals and lodging if the main reason for being in the home is to obtain medical care
• Oxygen and oxygen equipment
• Special education; tuition for sending a mentally impaired or physically disabled person to a special school that has resources to relieve the disability
• Smoking cessation programs (does not have to be recommended by a physician)
• Swimming (the cost of therapeutic swimming prescribed by a physician)
• Telephone (the cost and repair of special telephone equipment for a hearing-impaired person)
• Television (the cost of equipment used to display the audio part of a TV program for hearing-impaired persons)
• Transplant of an organ (but not hair transplants)
• Transportation costs for obtaining medical care
• Travel expenses for parents visiting their child in a special school for children with drug problems, where the visits are part of the medical treatment
• Weight loss program, if it is recommended by a doctor to treat a specific medical condition or to cure any specific ailment or disease
• Whirlpool baths prescribed by a doctor
• X-ray services

The following are five tips to help maximize your medical expense tax deductions.

1. General Rules for Medical Expense Tax Deduction

Tax filers are able to deduct the amount of unreimbursed medical expenses in excess of 10% of Adjusted Gross Income (AGI). Previously, the law permitted deductions for unreimbursed expenses in excess of 7.5% of AGI.

To quickly calculate the minimum amount of medical expenses that you need to have incurred in order to qualify for the deduction, take your AGI and multiply it by 0.10.

Example: If your AGI was $60,000, [60,000*0.10 = $6,000]. Any expenses incurred beyond $6,000 would be considered tax-deductible medical expenses. 

Age 65 or Older? There is a temporary exemption for individuals age 65 and older until December 31, 2016. If you are 65 years or older, you may continue to deduct total medical expenses that exceed 7.5% of your AGI through 2016. If you are married and only one of you is age 65 or older, you may still deduct total medical expenses that exceed 7.5% of AGI. This exemption is temporary. Beginning January 1, 2017, the 10% threshold will apply to all taxpayers, including those over 65.

2. Whose Medical Expenses May be Deducted?

Medical expenses may be deducted for yourself, spouse, dependent, qualifying child, qualifying relative, and/or decedent. Medical expenses are deductible as long as the person was considered a spouse or dependent at the time services were performed or when payment was rendered. 

3. Medical Expenses That Qualify for Deduction

IRS Publication 502 provides guidance on the types of medical expenses that qualify for medical expense deduction. 

For each medical expense, you should keep a record of the name and address of each medical care provider you paid and the amount and date of each payment. You should also keep a statement or itemized invoice showing a description of the medical care received, who received the care, and the nature and purpose of the medical expenses.

4. Overlooked Expenses That Qualify for Medical Expense Deduction

1. Travel expenses to and from medical treatments (see IRS standard mileage rates)
2. Insurance payments from already-taxed income (includes long-term care insurance)
3. Uninsured medical treatments (e.g. false teeth, contact lenses, etc.)

5. Medical Reimbursement Plans as Vehicles for Medical Expense Tax Deductions

Many business owners and employers set up a tax-advantaged medical reimbursement plan as a vehicle for medical expense tax deductions. There are different types of medical reimbursement plans, inlcuding:

• Health Reimbursement Arrangement (HRA) - An HRA is an employer-funded plan that reimburses employees tax-free for HRA-qualified medical expenses. HRA reimbursement dollars received by an employee are not included as income and therefore do not affect their AGI. 
• Healthcare Reimbursement Plan (HRP) - An HRP is an employer-funded, limited-purpose Section 105 Plan designed for premium reimbursement. An HRP can be used to reimburse qualified individual and family health insurance premiums. HRP reimbursement dollars received by an employee are not included as income and therefore do not affect their AGI. 
• Health Savings Account (HSA) - An HSA is a financial account established by an individual to pay for qualified medical expenses tax-free. HSAs must be linked with a qualified high-deductible health insurance plan and anyone can contribute to it.
• Flexible Spending Account (FSA) - An FSA is a tax-advantaged account that allows an employee to pay for future qualified medical expenses through payroll deduction.