Can Seniors Deduct Medical Expenses on Their Taxes?
As we reach our golden years, our health and medical needs often expand. Many older adults are facing costly out-of-pocket expenses that can throw off even the best retirement budget. Taxes can certainly be a stressful event (no matter how long you've been filing)!
This article will cover the essential facts on what medical expenses you can deduct, which expenses are off-limits, and the difference between itemized and standard deductions so you can stay on top of your finances.
How Much Can I Deduct on My Taxes for Medical Expenses?
Taking care of your health is an investment in your future. However, out-of-pocket medical costs are a significant expense for older adults, especially for those who have retired. The good news is you can claim some of these expenses on your taxes. The key? They must be itemized and exceed 7.5 percent of your adjusted gross income. So, what exactly are itemized deductions? Itemized deductions include amounts paid for medical and dental expenses, state and local taxes, charitable contributions, property taxes, and mortgage interest.
How Is the 7.5 Percent of Adjusted Gross Income Calculated?
According to the IRS, you can deduct only the part of your medical and dental expenses that exceeds 7.5 percent of the amount of your adjusted gross income.1 These expenses must be itemized.
Let's look at an example. If your adjusted gross income (AGI) for the 2020 tax year was $50,000, you'd need more than $3,750 ($50,000 x 7.5%) in itemized medical expenses.
A costly year of medical expenses such as dentures, surgery, hearing aids, and a hospital stay can add up quickly. For instance, if your out-of-pocket medical expenses totaled $35,000, you would claim $31,250 ($35,000 – $3,750) in itemized medical expenses in the example AGI above.
Pro Tip: Make tax season easier by staying organized throughout the year. File your medical and dental receipts in a collapsible file folder for easy access when you prepare your return.
However, if your out-of-pocket medical expenses have been minimal, a better option may be to take the IRS standard deduction. The standard deduction does not require any itemization. A good accountant or tax software package could help you determine whether itemizing is right for you.
We spoke with Alison Flores, principal tax research analyst at H&R Block, about deducting medical expenses. To make tracking your deductible medical expenses easier, Flores recommends that you “save all your receipts in a folder or designated spot so they are all together. Don't wait for the end of the year to try and pull everything together.” Staying organized means you'll have one less thing to worry about when tax season rolls around!
What Is the IRS Standard Deduction for 2020?
|Filing status||Standard deduction*|
|Single/Married Filing Separately||$12,400|
|Head of Household||$18,650|
|Married Filing Jointly||$24,800|
*Data for this chart comes from IRS Publication 501.
Did You Know: There are several tax credits and deductions available to seniors specifically. To learn more, head to our guide to tax credits and deductions for older adults.
What Medical Expenses Are Tax-Deductible?
Unreimbursed medical expenses can undoubtedly leave your wallet feeling light. After adding up all of your medical expenditures, you'll have a clearer sense of which option, itemized deduction or standard deduction, will work best for your needs.
Medical expenses that are tax-deductible include:
- Items such as false teeth, eyeglasses, hearing aids, artificial limbs, and wheelchairs
- Hospital service fees such as lab work, therapy, nursing services, and surgery
- Medical services fees from doctors, dentists, surgeons, and specialists
- Medicare Part A premium (if you aren’t covered under Social Security or weren’t a government employee who paid Medicare tax)
- Medicare Part B and D premiums
- Nursing home care (including meal and lodging costs), if the primary reason for residence is to receive medical care
- Oxygen and oxygen equipment
- Prescription drugs and insulin
- Qualified long-term care services
- Transportation and car expenses related to travel to and from medical care
There are a few new tax-deductible medical expenses you should be aware of when tracking your expenses. Alison Flores from H&R Block notes, “Personal protective equipment (PPE) to prevent the spread of COVID-19 is a deductible medical expense. This can include expenses for face masks, sanitizing wipes, and hand sanitizer use to prevent the spread of coronavirus.” Make sure to keep your receipts the next time you stock up on PPE!
Pro Tip: Double-check the IRS comprehensive list of approved medical and dental expenses to ensure you're not leaving out unclaimed expenditures.
Flores also points out that part of your hospital bill might be deductible if you “were hospitalized for treatment related to COVID-19.” She recommends checking your insurance policy to find out exactly what is covered by your provider and what is not; you'll only be able to deduct the expenses that weren't covered by your insurance provider.
The Timeline for Tax-Deductible Medical Expenses
When tracking your deductible medical expenses, it's important to know which costs apply to the current tax year. Flores points out that “generally, medical expenses are deductible in the year the provider is paid, regardless of when the services were provided.” That means you'll want to pay close attention to the dates of your payments rather than the dates of your medical appointments. “If you have a payment plan with the provider,” said Florres, “you will deduct actual payments made during the year, and you might deduct expenses related to one event over two or more tax years. If you pay for medical treatment using a credit card, you deduct the expenses in the year you paid the provider with the credit card, not as you pay your credit card bill.”
What Medical Expenses Are Not Tax-Deductible?
Unfortunately, not all medical expenses are tax-deductible. Before you tally up your itemized costs, do not include uncovered items such as these:
- Health club fees
- Funeral, burial, or cremation expenses
- Nonprescription medicine (except for insulin)
- Health savings account payments for medical expenses
- Insurance policies supplying payment for loss of life, limb, or sight
- Life insurance or income protection policies
- Pretaxed flexible spending account reimbursements for medical expenses
- Social exercises, such as swimming lessons
- Surgery for cosmetic purposes
- Toiletries, such as toothpaste and cosmetics
Did You Know: If you're age 65 years or older, you may be eligible to file using IRS form 1040-SR, the U.S. Tax Return for Seniors.
Medical Expense Deductions for Self-Employed Seniors
The IRS defines self-employed as individuals who:2
- Are in business for themselves, including a part-time business
- Carry on a business or trade as an independent contractor or sole proprietor
- Are a member of a partnership that carries on a business or trade
If you're a self-employed senior and have a net profit for the year, health insurance premiums such as Medicare, Medicaid, Medicare Supplement Insurance (Medigap) and qualified long-term care insurance can be claimed as a health insurance deduction. These expenses will serve as a deduction toward your adjusted gross income. They are not part of the 7.5 percent rule or an itemized deduction.
How Can Seniors Claim the Medical Expense Tax Deduction?
After you've compiled your medical expenses and confirmed the costs fall under the IRS medical expense approved deductions, it's time to claim your expenses.
Did You Know: You may qualify to receive an IRS credit for the elderly or disabled.
Your next step is to complete an IRS Itemized Deductions Schedule A form. This form is where you'll list expenses for medical, dental, taxes and interest paid, charitable contributions, and other deductions. Once this form is completed, attach it to your Form 1040 or 1040-SR.
Free Tax Help for Older Adults
Unsure if you're claiming the correct health care and medical expenses? You don't have to go through this process alone! There are several free tax services to help older adults prepare their tax returns. Take advantage of these important resources:
AARP Foundation Tax-Aide: The AARP Foundation Tax-Aide provides free tax assistance to low to moderate income taxpayers age 50 or older.
IRS Free File: The IRS Free File program is a partnership with brand-name tax preparation and software companies (known as the Free File Alliance) to provide federal income tax return preparation at no cost. Note: Not all IRS Free File partners offer free state tax services. Be sure to check with the company if both federal and state are free of charge.
Tax Counseling for the Elderly (TCE): The TCE program, offered through the IRS, provides free tax assistance for all taxpayers, specializing in helping adults age 60 years or older with pension and retirement-related questions.
Volunteer Income Tax Assistance (VITA): Through the IRS, the VITA program offers free tax return preparation to qualified individuals. People with low to moderate incomes, disabilities, and limited English-speaking taxpayers qualify for VITA.
Pro Tip: Get tax savvy by checking out the IRS Tax Guide for Seniors.
Are you struggling to pay your taxes? Check out the video below on how seniors may be able to avoid paying taxes legally.