Medical Insurance, Medical Expenses, and Taxes
Every year at tax time millions of Americans go scrounging around to find qualified deductions to offset their income. Medical expenses always pop up as a potential deduction, but many taxpayers are scared off by the high minimum expense requirement of 7.5 percent of income. In other words, if you make $50,000 per year, the first $3,750 in medical expenses is not deductible, but everyt qualified medical expense beyond that is. What many people don't realize is that other ancillary medical expenses, including medical insurance premiums, might qualify as part of the deduction.
What follows is not official tax advice, but rather a general overview to guide you in your discussion with a tax professional.
Very few people think of their medical insurance premium as a deductible expense, but under the right circumstances, it can be. Basically, if your insurance premium is paid for with post-tax money, you can deduct it. This means that if you are not getting your medical insurance through your employer, you can almost certainly deduct the cost of your insurance premium. If you are insured through your employer, you should still double check and make sure that the money is being deducted before taxes. If it is not, your medical insurance premium is a deductible expense. Seperate health-related insurance, like dental insurance or vision insurance, is handled in much the same way.
Long term care insurance can sometimes be a deductible expense if it is paid for with money that has already been taxed. Supplemental medical insurance, particularly insurance that pays for lost wages or give you a fixed daily compensation for injuries, is usually not deductible.
Some other often-overlooked medical expenses that can be deductible are expenses associated with traveling for medical treatments (including tolls and parking), copays, deductibles, alcohol or drug abuse treatment programs, and even some weight loss programs. It is important when claiming these deductions, however, to make sure not to include the portion that your medical insurance reimbursed you for. For instance, if you bought a pair of glasses and had an eye exam and your insurance reimbursed you for the exam but not the glasses, you could deduct only the cost of the glasses from your taxes. Even some procedures that medical insurance might not normally cover, like massage therapy or acupuncture, are often deductible medical expenses.
Flexible spending accounts (FSA's) can complicate medical tax deductions a bit. A flexible spending account is money set aside pre-tax, so it does not qualify you for any additional tax savings. In other words, if you pay a medical expense from your flexible spending account, you've already saved the money on taxes, so deducting it would be like double dipping, a practice that the federal government is not terribly fond of. They are still excellent instruments with which to save tax money--you just save the money up front instead of when you do your income taxes. Medical savings accounts (MSA's) work in much the same way, where the money set aside for the savings account is deducted from taxes so that the actual procedures paid for with the MSA are not deductible.
Medical expenses are often a large part of a family's expenses throughout the year; it makes sense that they should be a part of their tax plan as well. With good planning, proper documentation and the help of a qualified tax professional, a person can maximize their medical deductions and get Uncle Sam to pay them back for some of their medical spending.