Lake Forest and greater Chicago taxpayers know that medical expenses can take a bite out of the pocketbook, and fortunately the Internal Revenue Service (IRS) gives taxpayers some relief in case a costly health circumstance arises. Learn which medical expenses are tax deductible, and learn how the Tax Cuts and Jobs Act (TCJA) affected the medical expense tax deduction threshold, here at Pasquesi Sheppard LLC in Lake Forest, IL.
Are Medical Expenses Tax Deductible?
Yes. As mentioned earlier, medical expenses are tax deductible, with limitations.
What Medical Expenses Are Tax Deductible?
Medical expenses are tax deductible only if they’re “qualified.” What medical expenses “qualify” for tax deductions? The costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs for treatments affecting any part or function of the body all qualify as medical expenses, and are thus tax deductible. For clarification, examples include payments to your physician at Northwestern or payments to your Lake Forest dentist. Equipment, supplies, diagnostic devices, and prescription drugs also qualify as medical expenses you can write off.
Travel-related Healthcare Deductions
Mileage driven for healthcare-related purposes is also deductible at a rate of 17 cents per mile for 2017 and 18 cents per mile for 2018. Health insurance and long-term care insurance premiums can also qualify, with certain limits.
As of January 1, 2021, miles driven for healthcare purposes sits at 16 cents per mile.
Can I Deduct My Health Insurance on My Taxes?
Expenses reimbursed by insurance or paid with funds from a tax-advantaged account such as a Health Savings Account or Flexible Spending Account can’t be deducted. Likewise, health insurance premiums are not deductible if they’re taken out of your paycheck pretax.
Medical Deduction AGI Threshold
Before 2013, you could claim an itemized deduction for qualified unreimbursed medical expenses paid for you, your spouse and your dependents, to the extent those expenses exceeded 7.5% of your adjusted gross income (AGI). AGI includes all of your taxable income items reduced by certain “above-the-line” deductions, such as those for deductible IRA contributions and student loan interest.
As part of the Affordable Care Act, a higher deduction threshold of 10% of AGI went into effect in 2014 for most taxpayers and was scheduled to go into effect in 2017 for taxpayers age 65 or older. But under the Tax Cut & Jobs Act of 2018, a 7.5%-of-AGI deduction threshold was applied for taxpayers. This deduction threshold was in effect for 2018, 2019, 2020, and 2021, but this will change in the 2022 tax season.
As of 2021, the medical expense deduction threshold is currently 10%. This means that all medical expenses from 2021 must exceed 10% of your AGI if you want to deduct them in your 2022 taxes.
Rely On Pasquesi Sheppard As Your Lake Forest CPA!
Keep in mind that you have to itemize deductions to deduct medical expenses. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. Because of the 10% AGI threshold, many taxpayers who’ve typically itemized may no longer benefit from itemizing.
If you have questions about whether you can qualify for a deduction on your 2022 tax return, or about how the TCJA affects you and your Lake Forest family, don't hesitate to contact us today. We can also help you determine whether bunching medical expenses will save you money with our expert tax services.