Are medical bills tax deductible?

Medical costs can be deducted, with limits

The IRS does allow a deduction for medical and dental costs. A deduction is an amount you subtract from your income before your tax is figured, so it can lower the tax you owe. The rules are strict, and many people end up with no deduction at all.

This page explains the basic rules in plain words. It is general information and is not tax advice. Your own situation may be different, so please talk to a tax adviser before you file.

The 7.5 percent rule in simple words

Your adjusted gross income, or AGI, is roughly your income for the year after a few set subtractions. You can find the number on your tax return. The IRS says you can deduct only the part of your medical costs that goes above 7.5 percent of your AGI.

Here is an example to show the idea. Say your AGI is $40,000, which makes 7.5 percent of it $3,000. If you paid $5,000 in medical costs that nobody repaid, only the extra $2,000 could count, and the first $3,000 would not.

This example is made up to show how the math works, and it is not a prediction about your taxes. The rule uses your own income, so the line is higher for a person who earns more and lower for a person who earns less. A family with a low income may cross the line with a smaller bill than a family with a high income.

You have to itemize to claim it

Most people take the standard deduction, which is a flat amount set by the IRS based on your filing status. The other choice is to itemize, which means you add up certain costs one by one on a form called Schedule A. The IRS says you should itemize only if your itemized costs add up to more than your standard deduction.

Medical costs are one of the things you can put on Schedule A, and others include home mortgage interest and gifts to charity. What is left after the 7.5 percent rule may be small. It may not be enough on their own to beat the standard deduction.

A person with large medical bills in one year may benefit, and a person with small ones usually will not. A tax adviser or tax software can compare both ways for you. The IRS also has a free page on irs.gov that explains how to decide whether to itemize.

What counts as a medical cost

The IRS lists many costs that can count, and these are examples from its guidance.

• Fees that you pay to doctors or dentists can count.
• Hospital care and nursing home care can count.
• Prescription drugs and insulin can also count.
• Eyeglasses, contact lenses, hearing aids and wheelchairs can count.
• Travel to and from the care that you need can count.
• Health insurance premiums that you pay with after-tax money can count.

Some things do not count, the IRS says. Medicine that you buy without a prescription cannot be included, except for insulin. Things that only help your general health, such as vitamins or gym dues, are not allowed. Most cosmetic surgery does not count either, and neither does anything that an insurer paid back to you.

Whose bills count and in which year

You can include medical costs you paid for yourself, for your spouse and for people who depend on you. A dependent is generally a person you support, such as a child. The rules have special cases, such as divorced parents, so check with a tax adviser.

The year you pay is the year that counts. A cost put on a credit card counts in the year of the charge. The IRS does not count it in the year you pay off the card. A check counts on the day you mail or deliver it. A tax adviser can tell you how payments made over many months are counted.

Keep your bills and your proof of payment for each one. Our guide on how to negotiate a medical bill shows how to ask for an itemized bill, which helps with this.

If you do not itemize

Taking the standard deduction means you get no separate tax break for medical bills. That does not mean you did anything wrong. It only means your total costs did not pass the standard deduction.

Many families with large bills still do not reach the line, because the 7.5 percent rule removes a big part of what they spent. In that case the best help is a lower bill and not a tax form. The next section shows you where to start looking.

Other ways to lower the cost first

A tax deduction only gives back a part of what you spent, and only for some people. Lowering the bill itself is often worth more. Ask about hospital financial assistance and a self-pay discount before you pay.

People with a health savings account, or HSA, may be able to pay with that money. Our guide on using an HSA for direct primary care explains one case. A tax adviser can say how an HSA affects what you can deduct.

If you think you are having an emergency, call 911 or go to the nearest emergency room right away. Do not let a bill or a tax rule stop you from getting care. To find a doctor you can afford for regular care, use our directory of cash-pay doctors.