March 6, 2015

pub502-147x147Going to the doctor or to the dentist is almost never an enjoyable experience. Nonetheless, even if you’re in excellent health, you are still likely to accumulate medical and dental expenses – if only for insurance premiums and checkups. In some cases, you can recover at least some of your expenses through credits and deductions on your federal income tax returns. However, depending on your circumstances, recent changes in the tax code may make it more difficult for you to qualify for tax relief. If you have questions, the professionals at Optima Tax Relief can help you decipher which benefits you are entitled to and how to claim them.

Increase in the Adjusted Gross Income (AGI) Threshold

Before January 1, 2013, wage earners were allowed to deduct medical and dental expenses that exceeded 7.5 percent of their adjusted gross income (AGI). However, from 2013 forward, the AGI threshold for most taxpayers to deduct medical and dental expenses has increased to 10 percent. Taxpayers who are married with at least one spouse age 65 or older may still use the 7.5 percent threshold to claim medical and dental expense deductions until December 31, 2016. Beginning in 2017, the AGI threshold for claiming medical and dental expenses increases permanently to 10 percent for all taxpayers who are wage earners.

deductionsAllowable Medical and Dental Expenses

Although the increase in the AGI threshold is steep, the list of allowable expenses to claim as medical and dental expenses is extensive. Insurance premiums, office visits, vision correction, chiropractic care, physical therapy and mental health treatments are all deductible. Even transportation to and from the hospital or doctor’s office can be deducted, including public transportation costs, parking and tolls. Taxpayers who use their personal cars to travel to and from their homes to receive treatment may deduct 24 cents per mile on their federal income tax returns for 2014. On the other hand, elective cosmetic surgery (reconstructive or corrective plastic surgery is deductable) and Medicare tax payments for self-employed taxpayers are not allowable deductions.

Wage Earners Must Itemize

Wage earners who take the standard deduction cannot claim an additional deduction for medical and dental expenses. Instead, wage earners must itemize their deductions by filing Form 1040, commonly called the “long form” along with Schedule A to claim those expenses that exceed 10 percent of AGI (or 7.5 percent taxpayers eligible for the temporary exemption). Taxpayers may claim expenses paid for themselves, their spouses and children or other individuals claimed as dependents.

Rules for Self-Employed Taxpayers

Self-employed taxpayers are generally exempt from the AGI threshold requirement, and can claim eligible medical and dental expenses even if they take the standard deduction. To claim the deduction, self-employed taxpayers should file Form 1040 along with Schedule C, Profit or Loss from Business, Schedule C-EZ, Net Profit from Business, or Schedule F, Profit or Loss from Farming. Although self-employed taxpayers are not required to meet the AGI threshold, they are still prohibited from double-dipping. This means that expenses paid through a HSA are not deductible. In addition, self-employed taxpayers cannot claim deductions for medical or dental expenses for any month that they would have been eligible for subsidized health care coverage by an employer, former employer, spouse’s employer or ex-spouse’s employer.

calculateCalculating Your Medical and Dental Expense Deduction

Besides meeting the AGI threshold, taxpayers are only entitled to deduct medical and dental expenses that are not reimbursed or otherwise accounted for. This means that expenses that were paid through a Health Savings Account (HSA) or Flexible Spending Arrangement (FSA) cannot be deducted, because withdrawals from HSAs or FSAs to cover medical and dental expenses are almost always tax-free. Taxpayers are also prohibited from deducting expenses that are covered by their insurance or paid for by their employers such as worker’s compensation claims.

Deductions can only be claimed for expenses paid during the previous calendar year. However, if you mailed a check or posted a credit or debit card payment on December 31, you can include that payment even if it doesn’t actually post until the new year. Therefore, be sure to keep your receipt or other proof of when the payment was made. If you are unsure about whether a specific expense qualifies for the medical or dental expense deduction, a tax professional, such as an attorney from Optima Tax Relief, can determine whether or not the expense in question is deductible.