Medical Expense Deductions: How Do They Work?

Medical expenses can be confusing when it comes to taxes. Many people assume that any medical bill they paid can be deducted — but the rules are more specific than that.

This article explains what medical expenses may be deductible, when they matter, and who typically benefits, in straightforward terms.

🟢 HOW THE MEDICAL EXPENSE DEDUCTION WORKS

Medical expenses are an itemized deduction, not a standard one.

That means:

🔹 You must itemize deductions to claim medical expenses

🔹 Medical expenses only help if they exceed a certain income threshold

🔹 Many taxpayers do not benefit unless expenses are unusually high

Because of this, the deduction mainly applies in specific situations.

🟢 THE INCOME THRESHOLD (IMPORTANT)

You can only deduct the portion of medical expenses that exceeds 7.5% of your adjusted gross income (AGI).

Example:

🔹 AGI: $80,000

🔹 7.5% of AGI: $6,000

🔹 Total medical expenses paid: $9,000

🔹 Deductible amount: $3,000

Only the amount above the threshold counts.

🟢 MEDICAL EXPENSES THAT ARE GENERALLY DEDUCTIBLE

Some common deductible medical expenses include:

🔹 Doctor, dentist, and specialist visits

🔹 Hospital services and surgery

🔹 Prescription medications

🔹 Medical equipment (such as braces, hearing aids, CPAP machines)

🔹 Mental health treatment and therapy

🔹 Certain long-term care services

🔹 Health insurance premiums in specific situations

These expenses must usually be paid out of pocket to qualify.

🟢 EXPENSES THAT ARE USUALLY NOT DEDUCTIBLE

Some medical-related costs do not qualify, including:

🔹 Cosmetic procedures (unless medically necessary)

🔹 Over-the-counter medications (with limited exceptions)

🔹 General health items like vitamins or supplements

🔹 Gym memberships or fitness programs

🔹 Non-prescription wellness treatments

Even if an expense feels “medical,” it may not meet IRS criteria.

🟢 HEALTH INSURANCE PREMIUMS AND MEDICAL DEDUCTIONS

Health insurance premiums may be deductible in certain cases:

🔹 Self-employed individuals may deduct premiums separately

🔹 Medicare premiums are often deductible when itemizing

🔹 Employer-paid premiums are not deductible by the employee

The treatment depends on how the insurance was obtained and paid.

🟢 WHEN THE MEDICAL DEDUCTION TENDS TO HELP MOST

This deduction is most useful for taxpayers who:

🔹 Had major medical procedures

🔹 Paid large out-of-pocket costs

🔹 Have chronic medical conditions

🔹 Paid significant long-term care expenses

🔹 Are retirees with medical costs and lower income

For many others, the standard deduction is still the better option.

🟢 RECORDKEEPING MATTERS

If you plan to deduct medical expenses, good records are essential.

You should keep:

🔹 Receipts and invoices

🔹 Proof of payment

🔹 Insurance statements showing what was not reimbursed

Only expenses not reimbursed by insurance can be deducted.

🟢 COMMON MISUNDERSTANDINGS

🔹 “All medical bills are deductible”→ Only amounts above the income threshold qualify.

🔹 “Insurance-paid expenses count”→ Only out-of-pocket costs qualify.

🔹 “I can deduct medical expenses even if I take the standard deduction”→ Medical expenses only matter if you itemize.

🟢 A PRACTICAL RULE OF THUMB

🔹 Modest medical costs → usually no tax benefit

🔹 High out-of-pocket expenses → worth reviewing

🔹 Near the itemization threshold → compare both options

Running the numbers is the only way to know for sure.

🟢 NEED HELP DETERMINING WHAT QUALIFIES?

Medical deductions can be overlooked or misapplied if not reviewed carefully.

At Pacific Data, we help clients:

🔹 Identify which medical expenses qualify

🔹 Determine whether itemizing makes sense

🔹 Avoid claiming non-deductible expenses

🔹 Coordinate medical deductions with overall tax planning

If you’re unsure whether your medical expenses provide a tax benefit, we’re happy to review your situation.