Can Out-of-Pocket Medical Expenses Be Claimed on Taxes?
In the United States, healthcare costs can be a significant financial burden for many individuals and families. However, the good news is that some of these expenses may be tax-deductible. The question often arises: can out-of-pocket medical expenses be claimed on taxes? The answer is yes, under certain conditions.
Understanding Tax Deductions for Medical Expenses
The IRS allows taxpayers to deduct eligible out-of-pocket medical expenses that exceed a certain percentage of their adjusted gross income (AGI). For the tax year 2021, this threshold is set at 7.5% of the taxpayer’s AGI. To be eligible for the deduction, the expenses must be unreimbursed and paid during the tax year.
Eligible Medical Expenses
The IRS defines eligible medical expenses as those that are necessary for the prevention, diagnosis, treatment, or mitigation of a physical or mental illness or condition. Some common examples include:
– Doctor visits and hospital stays
– Prescription medications and over-the-counter drugs
– Dental care and orthodontia
– Vision care, including glasses and contact lenses
– Mental health treatment, such as therapy or counseling
– Certain long-term care services and insurance premiums
Documentation and Record Keeping
To claim a deduction for out-of-pocket medical expenses, it is crucial to maintain accurate records and documentation. This includes receipts, bills, and any other proof of payment. Taxpayers should keep these records for at least three years from the date they file their income tax return.
Claiming the Deduction
There are two ways to claim the deduction for out-of-pocket medical expenses:
1. Itemized Deductions: Taxpayers who itemize deductions on Schedule A can include eligible medical expenses that exceed the 7.5% threshold. It is important to note that itemizing deductions may only be beneficial if the total itemized deductions exceed the standard deduction.
2. Health Savings Account (HSA): If taxpayers have a Health Savings Account (HSA), they can use the funds to pay for eligible medical expenses without incurring taxes. HSAs offer a triple tax advantage, as contributions are made with pre-tax dollars, earnings grow tax-deferred, and withdrawals for qualified medical expenses are tax-free.
Seeking Professional Advice
While understanding the rules for claiming out-of-pocket medical expenses on taxes can be complex, it is essential to seek professional advice if needed. Tax professionals, such as Certified Public Accountants (CPAs) or tax preparers, can provide guidance and ensure that taxpayers are maximizing their deductions while adhering to IRS regulations.
In conclusion, can out-of-pocket medical expenses be claimed on taxes? The answer is yes, under certain conditions. By understanding the eligibility requirements, maintaining accurate records, and seeking professional advice when necessary, taxpayers can take advantage of this valuable tax deduction to alleviate some of the financial burden associated with healthcare costs.
