If you're covered by a good health insurance plan, you might not give too much thought to the annoying little co-pays and extras you must pay yourself. If you're married and have dependents, however, these extras can add up at the end of the tax year. The Internal Revenue Service allows you to deduct a certain amount of the health care costs you pay on behalf of your spouse, your children, yourself, and even sometimes your parents. If you pay for your own health insurance policy, the premiums are deductible as well.
Claiming your health care costs as a tax deduction involves itemizing your deductions by completing and filing Schedule A with your 1040 tax return. Schedule A doesn't list only your medical costs. You can also deduct some expenses associated with home ownership, as well as some work-related expenses, charitable contributions and other things. Itemizing and claiming your health care costs is only worthwhile if all these deductions add up to more than the standard deduction for your filing status. For example, if you're married and you're filing a joint return, the standard deduction is $11,900 as of 2012. If your health care and other deductions don't add up to more than $11,900, taking the standard deduction rather than itemizing will reduce your taxable income more.
Allowable Medical Expenses
The IRS allows a wide range of health care deductions, so it's possible that they could add up to more than your standard deduction, particularly if you're supporting several dependents and one or more of you have health issues that require ongoing care. In addition to your insurance premiums, you can deduct your out-of-pocket costs for anything your policy might not cover, such as eyeglasses, dental work, weight-loss programs if they're ordered by a physician to address a medical condition, prescription drugs, and even laser vision surgery. You generally cannot deduct any medicines that don't require a prescription, or elective procedures for conditions that don't threaten your health. You can't deduct anything your employer contributes to your health insurance plan, but only the portion you pay yourself. If you're not insured, you can deduct the full value of your qualifying expenses.
The 7.5 Percent Rule
Unfortunately, the IRS places a restriction on the portion of your overall allowable health care costs that you can deduct. In 2012, you're limited to costs that exceed 7.5 percent of your adjusted gross income, and in 2013, this increases to 10 percent. If 7.5 percent of your AGI is $4,875 and your total medical costs for the year are $5,000, your deduction is only $125. This might not add enough to your overall itemized deductions to warrant itemizing rather than claiming the standard deduction.
If you're self-employed, the IRS allows you to bypass the itemizing rule to claim a deduction for insurance premiums you pay for yourself or your dependents. The premiums don't have to add up to more than 7.5 or 10 percent of your AGI, but some other rules apply. Self-employed individuals can deduct health insurance on the first page of their tax returns and claim the standard deduction for their filing status as well. Although you typically can't deduct costs for home care if one of your dependents is seriously ill, you may be able to qualify for another tax break. If you're required to pay for this care so you can work, you might qualify for the child and dependent care tax credit. The rules are complicated, so speak with a tax professional if you're paying for someone's home care.
- Jupiterimages/Goodshoot/Getty Images
- How Much Tax Taken From Scratch Ticket?
- What Can I Prepay for Better Tax Deductions?
- How to Set Up a Quarterly Estimated Tax Deduction From My Account
- Tax Deduction for a Loss in a 401(k) Plan
- Can I Deduct My House Rent on My Personal Income Tax Return?
- Can Gas & Vehicle Expenses for Work Be Counted as Tax Deductions?
- Tax Deductions for Donating a Horse to a Nonprofit Group
- Health Care Tax Deductions
- Spousal Support As a Tax Deduction
- Tax Deduction If You Paid Back Owed Taxes