Under the ACA you can take tax deductions for medical and dental expenses that exceed 10%* of your annual Adjusted Gross Income using a Form 1040, Schedule A. This includes deductions for most medical and dental costs for you, your spouse, and your dependents. Most people won’t take this deduction, but if you’ve had a lot of medical expenses or your income was lower than expected, it can be a wallet-saver.
As a rule of thumb:
- If you paid the cost out-of-pocket, you can deduct it. This includes things like wellness programs and transportation needed for care.
- If your insurer paid it, the marketplace paid it as an advanced tax credit, or you put it in a medical savings account, you can’t deduct it. No “double benefits.”
* The specific percentage number is a little complicated due to changes to the laws over time and how deductions affected those who paid the Alternative Minimum Tax (AMT) in the past. Here is the deal, before 2013, itemized deduction for medical expenses exceeding 7.5% of adjusted gross income (AGI) were allowed. However, for tax payers subject to the Alternative Minimum Tax (AMT), it was 10%. Then, under the ACA, starting in 2016, the adjusted gross income floor was supposed to be increased to 10% for all groups aside from those over 65. However, despite all those details, the adjustment never went into place and the floor remained 7.5% for 2017 and 2018. However, now in 2019, the 10% limit really is kicking in! Thus above we wrote “10%*.”
Important Medical Expense Deduction Facts
Here are some quick facts on how Medical and Dental tax deductions work under the ACA:
- You can only deduct “qualifying expenses.”
- Medical expenses must exceed 10% of your adjusted gross income before you can claim a deduction starting in 2019. Prior to this it was 7.5% (although see the notes above on the history of the Medical Expense tax deduction).
- You can only deduct a portion of your health insurance premium.
- If you are over 40 years old you can count a higher portion of your premium toward your expenses.
- You have to itemize deduction on a Schedule A to take them.
- Expenses must have been paid in the taxable year.
- You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply.
- You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. The cost of prescription drugs and insulin also qualify. For more examples of deductible costs, see IRS Publication 502, Medical and Dental Expenses.
- You can include travel costs needed for medical care.
- You can’t claim “double benefits” so you can’t deduct amounts paid into medical savings accounts as they are tax-free.
- Taking the tax deduction for Medical and Dental doesn’t lower your MAGI. You need to calculate your MAGI before taking the deductions. It lowers the amount of taxable income you claim. It won’t qualify you for more tax credits but can help prevent you from owing tax credits back when you file the Premium Tax Credit form 8962. This protects those who lost income due to medical expenses.
How Do I Take Tax Deductions for Medical and Dental?
You’ll need to itemize your deductions for the year for yourself, your spouse and your dependents on a Schedule A. All medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body. Deductions can include premium amounts, but not amounts paid by the insurer or amounts paid by premium tax credits. See below for full list of deductible items.
Follow These Instructions from TurboTax:
- On Schedule A, report the total medical expenses you paid during the year on line 1 and your adjusted gross income (from line 38 of your Form 1040) on line 2.
- Enter 10% of your adjusted gross income on line 3.
- Enter the difference between your expenses and 10% of your adjusted gross income on line 4.
- The resulting amount on line 4 will be subtracted from your adjusted gross income to reduce your taxable income for the year.
- If this amount, plus any other standard deductions you claim, is less than your standard deduction, you should not itemize.
IMPORTANT: Self-employed individuals can deduct 100% of medical and dental including premiums. Learn more about self-employed deductions. If you do not claim 100% of your self-employed health insurance deduction, you can include the remaining premiums with your other medical expenses as an itemized deduction on Form 1040, Schedule A
How Much Can I Deduct For Medical and Dental?
TIP: This section is outdated because the rule never was enacted. The correct answer to this question should be clear from the information above.
- Before 2012 you could deduct all expenses over 7.5%
- For years beginning after December 31, 2012, you may deduct only the amount of your total medical expenses that exceed 10% of your adjusted gross income or 7.5% if you or your spouse is 65 or older.
- For those 65 or older, the 10% limit applies starting in 2016.
How the Affordable Care Act Changes Tax Deductions for Medical Expenses (2013) [the Rule as Written in the ACA]
Starting in 2013 the tax deduction threshold for medical expenses was raised from 7.5% to 10% ON PAPER (the change never actually took place).
The PPACA gives a lot of tax breaks that affect AGI/MAGI, but like new limits to medical savings accounts, raising the tax deduction limits isn’t super attractive on the surface. Take this into account, though, deducting medical expenses and putting money in a medical savings account can lower your MAGI. The lower your MAGI, the higher your tax credits. So if you got sick, and had a Marketplace plan, you could end up getting a larger tax refund due to qualifying for more premium health care tax credits.
What Medical and Dental Expenses Can I Deduct?
Deductible medical expenses may include but are not limited to the following:
- Payments of fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners
- Payments for in-patient hospital care or nursing home services, including the cost of meals and lodging charged by the hospital or nursing home
- Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction, for participation in a smoking-cessation program and for drugs to alleviate nicotine withdrawal that require a prescription
- Payments to participate in a weight-loss program for a specific disease or diseases diagnosed by a physician, including obesity, but not ordinarily payments for diet food items or the payment of health club dues
- Payments for insulin and payments for drugs that require a prescription
- Payments made for admission and transportation to a medical conference relating to a chronic disease that you, your spouse or your dependents have (if the costs are primarily for and essential to necessitated medical care). However, you may not deduct the costs for meals and lodging while attending the medical conference
- Payments for false teeth, reading or prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and for guide dogs for the blind or deaf
- Payments for transportation must be for and essential to medical care that qualifies as medical expenses. Examples would be payments of the fare for a taxi, bus, train, ambulance. If your medical transportation is by personal car, you can count the cost of your actual out-of-pocket expenses such as for gas and oil, or the amount of the standard mileage rate for medical expenses, plus the cost of tolls and parking fees.
- Payments for insurance premiums you paid for policies that cover medical care or for a qualified long-term care insurance policy covering qualified long-term care services. However, if you are an employee, do not include in medical expenses the portion of your premiums treated as paid by your employer under its sponsored group accident, health policy or qualified long-term care insurance policy. Also, do not include the premiums that you paid under your employer-sponsored policy under a premium conversion policy (pre-tax), paid by an employer-sponsored health insurance plan (cafeteria plan) or any other medical and dental expenses unless the premiums are included in box 1 of your Form W-2 (PDF), Wage and Tax Statement. For example, if you are a federal employee participating in the premium conversion program of the Federal Employee Health Benefits (FEHB) program, you may not include the premiums paid for the policy as a medical expense since they are never included in your gross income
Making Sure You Get a Fair Shake at Tax Time
Between exemptions, tax credits, medical deductions, and medical savings accounts a smart tax filer has a lot of tricks up their sleeve for making sure they get fair treatment from the IRS and ensuring their health care remains affordable. Don’t forget to take advantage of all the important tax forms. Get the guides to all ACA tax forms here to make sure you get the most out of the tax season.