Medical expenses, especially those not covered by insurance, can take a bite out of your budget. However, the Internal Revenue Service offers a tax deduction that may allow you to use some of these costs to lower your taxes. Because of the way the medical expenses deduction is structured, the best way to ask the question is, "What percentage of my health care is non-deductible?"
Threshold for Deduction
The medical expenses deduction allows you to deduct qualifying health care costs that exceed a specified percentage of your adjusted gross income. For the 2012 tax year, you can deduct expenses exceeding 7.5 percent of your adjusted gross income. For 2013 and beyond, the threshold increases to 10 percent. For example, assume your adjusted gross income is $60,000 and you have $8,000 of medical expenses. In 2012, you could deduct $3,500. In 2013, you could only deduct $2,000.
When figuring your health care costs for the year, you can only include the costs of qualifying expenses related to medical, dental and vision care. These include the cost of checkups, treatments and preventative care. However, it generally does not include cosmetic surgeries, unless it treats a deformity resulting from a genetic condition or accident. In addition, when figuring your total medical expenses, you can include the costs for not only yourself, but also your spouse and dependents. Finally, you can only include the medical expenses you pay during the year, even though you might receive the treatment in a different year. For example, if you received treatment in December 2012 but paid for it in January 2013, you must include those costs on your 2013 return.
No Double Dipping
You cannot include any medical expenses for which you have been reimbursed when figuring your deduction. Reimbursements include costs paid for with distributions from a health reimbursement account. For example, if you pay $3,000 for surgery but then your insurance reimburses you $2,500, you can only include $500 as a qualified medical expense. In addition, though insurance premiums count as a qualified medical expense, you can't include them if you pay for them with pretax dollars or if they are paid for by your employer.
You can only deduct your health care costs if you itemize your deductions. Depending on your circumstances, especially if your medical expenses deduction isn't very large, you may save more by claiming the standard deduction. To determine whether you should itemize, add your health care expenses deduction plus any other itemized deductions you qualify for, such as mortgage interest, state and local taxes, or charitable contributions. If the total exceeds your standard deduction, you should itemize.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."