** This article has been revised from its original version which was published on June…
If you, your spouse, or your dependents have been in the hospital, a skilled nursing facility, or had other costly medical or dental expenses in 2021, then you may be able to claim these expenses as a deduction on your individual income tax returns.
For tax returns filed in 2022, taxpayers who itemize their tax deductions for 2021 on Schedule A (IRS Form 1040) can deduct qualified medical expenses paid in 2021 that are more than 7.5% of their 2021 adjusted gross income.
So, if your adjusted gross income is $100,000, anything beyond the first $7,500 you spent on medical bills could be deductible.
To understand how much your medical expense deduction may be, you must consider the following:
- Standard tax deduction vs. itemizing your deductions
- What is your adjusted gross income?
- What is considered a qualified medical expense?
- Make the calculation
Standard Deduction v. Itemized Deductions
To understand if it is worth the time and effort of reviewing your records and calculating the potential medical expense deduction, you must first determine if you will itemize your deductions or take the standard deduction. In 2021 the standard deductions are as follows:
- $12,550 for single filers (plus $1,700 if taxpayer is 65 or older or blind)
- $12,550 for married couples filing separately (plus $1,350 if taxpayer is 65 or older or blind)
- $18,800 for heads of households (plus $1,700 if taxpayer is 65 or older or blind)
- $25,100 for married couples filing jointly (plus $1,350 for each taxpayer who is 65 or older or blind)
- $25,100 for a qualified widower (plus $1,350 if taxpayer is 65 or older or blind)
Some common itemized deductions include state and local taxes you paid (subject to $10,000 cap), home mortgage interest, charitable contributions, qualified long-term care insurance premiums, and of course unreimbursed qualified medical expenses.
If all your potential itemized deductions exceed your standard deduction, then it is generally advisable to itemize your deductions on Schedule A, of the 1040.
Adjusted Gross Income (AGI)
If you determine that you will itemize your deductions on your 2021 income tax return, then the next thing you need to understand is what is your adjusted gross income. Your adjusted gross income (AGI) is your gross income less adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to income include such items as educator expenses, Student loan interest, alimony payments, or contributions to a retirement account. Your AGI will never be more than your gross income, and depending on your deductions will be lower.
So for instance, if your gross income is $104,000 and you contribute $4,000 to your traditional Individual Retirement Account (IRA), then your AGI is $100,000.
Qualified Medical Expenses
Medical expenses are the costs associated with the diagnosis, cure, mitigation, treatment, or prevention of a disease that is recognized by the medical community as well as the costs for treatments affecting any area or function of the body. Medical expenses can include the cost of supplies, equipment, and diagnostic devices needed. Medical expenses also include dental expenses and certain costs of long-term care.
According to IRS Publication 502, generally, only nursing services performed by a home care worker can be deducted. These services do not need to be performed by a nurse. Some examples of qualifying services include giving medication, changing dressings for wounds, as well as bathing and grooming the patient.
Personal care and household maintenance services are not usually eligible for the medical expense deduction, with some exceptions. Chronically ill patients may deduct these expenses if a licensed health care practitioner has certified that the person meets either or both of the following conditions:
- The person has a loss of functional capacity and cannot perform at least two activities of daily living (ADLs) without substantial help for 90 days or more. ADLs include eating, toileting, transferring, bathing, dressing, and continence.
- The person has severe cognitive impairment and needs substantial supervision to protect their health and safety.
For the complete list, see IRS Publication 502 (pages 5-15).
It is important to note that qualifying medical expenses paid for you, your spouse, and your dependents in excess of 7.5% of your AGI are eligible for the medical expense deduction. This means that if you have dependent children or claim another person, such as an elderly parent or sibling with special needs, as a dependent on your income tax returns, then the qualifying medical expenses that you have paid for them are also part of the potential deduction.
Make the Calculation
Taking the example from above, assuming you itemize your deductions on your income tax return, you have an adjusted gross income of $100,000, and you have paid for qualifying medical expenses for yourself, your spouse, or a dependent in 2021 of $20,000, then you can take a medical expense deduction of $12,500 on your 2021 income tax return.
The calculation is as follows:
$104,000.00 – gross income
-$ 4,000.00 – contribution to IRA
$100,000.00 – Adjusted Gross Income (AGI)
$ 20,000.00 – Qualifying medical expenses paid in 2021
-$ 7,500.00 – 7.5% of AGI
$ 12,500.00 – allowable medical expense deduction
If you or your loved ones have significant medical and/or long-term care expenses you should speak with a qualified attorney to discuss how you can deduct medical expenses on your tax return. There are many potential ways to pay for these expenses and to take advantage of the medical expense deduction.