It’s tax time—again—and that’s the time of year when we become aware of just how much we spend on the various aspects of our lives. Medical expenses can comprise a big chunk of your disposable income, and it’s helpful to know that there is some relief available in the form of tax rebates.
So what exactly can you claim and how much is it worth to you to do so? We try to answer your questions here.
What Medical Expenses Can You Claim?
Since 2013, Americans are allowed to claim eligible medical and dental expenses that are more than 10% of their adjusted gross income (AGI).
This means if your income is $38,000 per year, you can only claim expenses in excess of $3,800. If you’ve paid out $5,240 for the year in medical costs, that means you can claim the difference of $1,440 against your tax.
Currently, a household with one or more residents aged 65 and older is entitled to claim once medical costs reach 7.5% of their AGI, but this only applies until the end of 2016. After that, 10% will apply to all households.
Eligible Costs YOu Can Claim
Not all medical costs are eligible for claiming against taxes, however. You’re entitled to claim only unreimbursed costs associated with:
Health and dental insurance premiums for the year
Alternative therapies, such as acupuncture, chiropractic and in-home health care
Mental health care, such as visits to psychiatrists and psychologists
Healthcare appliances such as glasses, contact lenses, dentures and hearing aids.
Travel costs for the purpose of medical care, such as mileage, bus fare and parking costs
The expenses must have all been paid during the applicable calendar year to be eligible, and if you paid with a check then the date on which the check was mailed or presented is the relevant date.
Generally speaking, the cost of cosmetic procedures isn’t eligible, and neither are over-the-counter medications except insulin, or toiletry products such as toothpaste, vitamins or diet foods.
How to Claim Medical Expenses
If you don’t claim medical expenses, you’re able to take the standardized claim.
To be able to claim your eligible medical expenses, however, it’s necessary for you to be able to itemize them and then you no longer qualify for the standardized claim.
It’s either the one or the other, not both, so you have to calculate whether the standardized claim is higher or the eligible medical expenses are higher.
Once you decide to claim itemized eligible medical expenses, use IRS form 1040 to report the full amount of medical expenses you paid out during the year. Attach Schedule A, which shows your total medical expenses plus your adjusted gross income.
Calculate and show 10% of your AGI and deduct it to show the claimable balance of medical costs. This is then deducted from your gross income before your tax for the year is calculated.
Caution: Check the value of your claimable amount against the standardized deduction to make sure you’re doing the right thing by claiming. If the standardized deduction is higher, then you’re probably better off reverting to non-itemized claims.
Most tax issues can be complex and difficult to understand. If your unreimbursed medical expenses are significant, it may be worth it to find assistance from someone qualified to help you.