When are medical expenses deductible? Tax Matters by David A. Katzman If you had a lot of medical expenses in 2008, or are racking up a lot in 2009, you may be wondering if these expenses are deductible on your federal income tax return. The Internal Revenue Service (IRS) does allow you to deduct medical expenses, but there are some significant restrictions, so most taxpayers may not qualify. If you have significant expenses, however, you may be able to take a deduction. Generally, the total of you medical expenses must be greater than 7.5 percent of your Adjusted Gross Income (AGI) before you are allowed to deduct any of them. For example, if your AGI is $100,000, your medical expenses must exceed $7,500 before a deduction is allowed. You must also itemize expenses in order to benefit from the deduction. What types of medical expenses qualify? While the total amount of your expenses must be fairly high before a deduction is allowed, the costs that you can include in figuring your deduction go well beyond basic doctor and hospital bills. Health insurance premiums are one large qualifying expense that may help you reach the expense threshold. You may deduct the cost of your medical insurance if you pay the costs. This means self-employed individuals may deduct the entire cost of their medical insurance premiums. For taxpayers with employer-paid medical insurance, you may deduct the cost of any contributing premiums you must pay with after-tax dollars or any other related costs, such as co-pays. You may also deduct the medical costs incurred by your dependents, such as your children. For divorced parents, the taxpayer who actually paid the cost of medical insurance for the children is generally able to include this expense even if the dependency exemption is claimed by the other parent. In some instances you may also be able to deduct some medical costs associated with an elderly relative who would qualify as a dependent except for the level of the individual’s gross income. Depending on your age and the dollar amounts involved, you may also be able to deduct the cost of long-term health care insurance. The cost of transportation to and from medical treatments is also deductible. If you drive, the cost may be calculated at an IRS-established per-mile rate. For 2008, that rate was 19 cents per mile for the first half of the year, through June 30, and 27 cents per mile from July 1 through December 31. For 2009, the rate is 24 cents per mile. You may elect, instead, to figure the actual costs by tracking your actual expenses, such as gas and oil. You are not allowed to include insurance, depreciation or maintenance in this figure, however. In either case, you are allowed to include any costs for parking or tolls. If you take public transportation or hire a cab, those costs are also deductible. Many other medical costs may also be included in your deductible medical expense total. For example, the cost of therapists and nurses may be included if these expenses are related to a specific medical condition, not just general health. Rehabilitation for a joint condition would qualify, but a trainer to improve your overall physical fitness would not. Other potentially deductible expense include prescription drugs; dental work; hearing and eye care, including eyeglasses and hearing aids; psychiatric care; smoking-cessation, excluding non-prescription nicotine gum and some nicotine patches; and weight-loss programs, excluding the cost of food, if the weight loss is used to treat a disease such as hypertension or heart disease. Elective expenses for cosmetic reasons, such as a facelift, cannot be deducted. Also any expenses related to treatments that are illegal under federal law are excluded. This includes the cost of marijuana in states where this drug is legal for medical purposes. While the percentage of medical expenses relative to your income is somewhat substantial, you may be surprised by how quickly these costs add up, so it is certainly worth pursuing if you think your medical expenses may reach 7.5 percent of your AGI. David A. Katzman is a certified public accountant licensed to practice in the State of Florida and the Commonwealth of Massachusetts. He is also a certified financial planner and certified senior advisor. Please consult your tax advisor for details and assistance in applying this general information to your specific situation.