When Can Medical Expenses be Deducted?

Today’s video addresses the deduction of medical expenses for those who itemize tax returns. What we want people to know is that it is more difficult than it used to be to deduct out-of-pocket medical expenses. The current IRS rule is that total expense should exceed 7.5% of one’s adjusted gross income to qualify for the deduction.

Please note that if you pay health insurance premiums as an individual, those expenses can be included. However, if you have group coverage through an employer, those expenses cannot be deducted as they were paid for with pre-tax dollars.

For high-income individuals and couples, it can be difficult to reach a medical expense level of 7.5% of adjusted gross income. Exceeding 7.5% of adjusted gross income is a high bar and high-income people tend to have good coverage which protects them from high out-of-pocket medical expenditures.

One reason we included this topic is because some believe that out-of-pocket medical expenses need to be tracked all year and submitted to one’s accountant for tax preparation. Our advice would be to estimate what the 7.5% of adjusted gross income is likely to be and assess the likelihood of exceeding that level. Of course, if any individual has an interest in having this information anyway, by all means, track the information. Or for those who know they will reach or exceed this level for years because an individual will indefinitely require substantial payment for services, then by all means keep these records.

You can access the relevant page from the IRS by clicking here to view the PDF, which provides additional details. Most of the information seems straightforward but I was surprised to learn that one can deduct the expense associated with attending a medical conference associated with a condition you or a dependent have. However, you can’t deduct the cost of lodging or meals while attending the conference.

In sum, fortunately, most of us won’t exceed the level of 7.5% of adjusted gross income spent on out-of-pocket medical expenses. But our advice is to have some idea of whether you might reach that threshold before putting too much effort in tracking the information or paying someone to do so.

Thanks.