Not realizing the quicksand they are stepping into, many taxpayers present to their tax professional a solid stack of receipts for all manner of medical costs, expecting that all will be deductible on Schedule A, Itemized Deductions, Form 1040.
Unfortunately, taxpayers often don’t have the solid footing they think they have when it comes to medical deductions. While many medical costs are deductible—including the cost of treatment to alleviate conditions or diseases and the cost of prescriptions and certain diagnostic services—some are not. The following lists identify some of the expenses taxpayers that can be deducted, and a few that are not deductible.
Solid Ground: Deductible Medical Expenses
In addition to the costs listed previously, deductible medical expenses include the following:
- Capital expenses for special equipment installed in, or improvements made to, a home that provides a medical benefit; these include wider doorways, entrance ramps, modified bathroom or kitchen equipment, and swimming pools for therapeutic purposes.
- Cosmetic surgery, if necessary to improve a deformity related to a congenital abnormality, accident, or disease.
- Dental treatments, including braces and dentures.
- Meals and lodging, if the stay is at a hospital or similar institution to obtain medical care.
- Orthopedic shoes (extra cost over regular shoes).
- Prosthetic limbs.
- Oxygen and equipment used to relieve medical breathing problems.
- Smoking cessation programs and prescribed drugs to alleviate nicotine withdrawal.
- Visual alert systems for the hearing-impaired.
- Medical aids such as wheelchairs, hearing aids, crutches, needles, and other diagnostic devices such as blood sugar kits.
- Guide dogs or other animals used by taxpayers who are visually or hearing impaired or are otherwise disabled.
- Weight loss programs as treatment for a specific disease; obesity is a disease as long as diagnosed by a physician. The Tax Court has allowed the extra cost for special diets over the cost of a normal diet when prescribed by a physician to alleviate a specific medical condition.
- Alcohol and drug addiction treatment, meals, and lodging at a therapeutic center for addictions.
- Tuition for day-camp programs designed for children with disabilities.
- The cost of hand controls for a vehicle for the physically handicapped, or the extra cost to design a vehicle to hold a wheelchair.
- Detachable items such as air conditioners, heaters, humidifiers, and air cleaners used for the benefit of a sick person or for the relief of allergies or other respiratory ailments.
- Laser eye surgery that meaningfully promotes the proper function of the eyes; vision correction with eyeglasses or contact lenses is also allowed.
- Out-of-pocket transportation expenses for medical reasons (allowed at a rate of 16.5 cents per mile for 2010).
The Quicksand: Medical Expenses That Are Not Deductible
Medical expenses that do not qualify include the following:
- Maternity clothes.
- Diaper services (unless needed to relieve the effects of a particular disease).
- Dancing lessons, even if recommended by a physician.
- Funeral expenses.
- Exercise programs to improve general health, even if recommended by a physician.
- Marijuana, even if legal under state law when prescribed by a physician in the state where the taxpayer lives.
- Health club dues (unless they are related to a specific medical condition).
- Vitamins and other nutritional supplements (unless prescribed by a physician as treatment for a specific, diagnosed medical condition.
For an extensive list of allowable and unallowable deductions, see the 1040 Quickfinder or the Tax Book and IRS Publication 502, Medical & Dental Expenses.
What Else Do Taxpayers Need to Know?
In addition to not realizing which expenses are not deductible, taxpayers are often unaware that a limit applies to what they can deduct. Taxpayers may deduct only the amount of expenses in excess of 7.5% of adjusted gross income. If deductions on Schedule A (including medical expenses) are not more than the standard deduction, they may not prove helpful on the federal return, though in many states they may become advantageous.
Medical expenses are reduced by payments from insurance or other sources. Payments received for the permanent loss or use of a member or function of the body, for loss of earnings related to a physical injury, or damages due to personal injury or sickness do not reduce expenses. Publication 4345, Settlements – Taxability, reviews those payments which may be taxable.
Excess reimbursements for medical expenses may need to be included in income. If the employer pays part of the premium and it is not included in income, a portion of the excess becomes income to the taxpayer. If the taxpayer is reimbursed at a later date, the amount up to the deduction taken previously must be included in income.
Taxpayers may also be able to claim expenses for themselves and those paid for other qualifying persons. If a taxpayer pays expenses for a parent for whom over half the support is provided, those expenses may be claimed.
Tax professionals can steer their clients away from the medical-deduction quicksand by keeping abreast of current law concerning medical expense deductibility—including which and whose medical expenses may be deducted, and the effect of taxpayer participation in a health reimbursement arrangement (HRA) funded by an employer—and advising clients accordingly.
by Merry Broughton