Medical emergencies can leave even the best prepared people in a tight spot financially, so it's natural to want to help out family members. Chipping in for a family member's medical expenses could qualify for a tax deduction, but it could also leave you with a gift tax bill, depending on how the expenses are paid and if you claim the family member as your dependent.
If you pay the medical bills directly, such as writing a check to the hospital on your family member's behalf, you don't have to worry about gift tax, or even using up your annual gift tax exclusion for the person, because money paid directly for medical bills is excluded. However, if you give the money to the family member and then the family member uses it to pay bills, that does count as a gift. As of 2013, you're allowed to give up to $14,000 per person each year without triggering gift taxes.
Claiming a Deduction Yourself
If you do pay the expenses directly, you might qualify to claim the costs as part of your own medical expenses deduction. Usually, to qualify you must claim the family member as your dependent. However, there are a few exceptions to this rule. For example, you're allowed to still include the expenses in your deduction if the person would have been your dependent except that he received more than $3,800 in gross income for the year as of 2013, or he filed a joint return for the year you paid the expenses. Suppose you paid the expenses of your 27-year-old son who still lives with you and you provide more than half his financial support, but he makes $5,000: you could claim the medical expenses you pay for him. If you gave the money to your family member first, however, it's technically a gift to him, and he is the one who gets to use the expenses for figuring the deduction.
Claiming the Deduction
The medical expenses deduction isn't a straight dollar-for-dollar deduction, so your generosity might not help you when it comes to your taxes. Instead, you're only allowed to write off the expenses that exceed 10 percent of your adjusted gross income and you must itemize to claim it. For example, say your AGI is $95,000. Unless your medical expenses exceed $9,500, you don't get any deduction. If you have $15,000, you would get to write off $5,500.
No Charitable Deduction
If the medical expenses deduction isn't working out so well for you, don't even think about trying to claim the costs as a charitable contribution. Sure, you're doing a nice deed for someone, and your family member might even be in dire financial need. However, the Internal Revenue Service doesn't allow you to count donations to any individual, including a family member, as a gift to charity.
- Internal Revenue Service: Frequently Asked Questions on Gift Taxes
- Friedler Law Group: To Gift or Not to Gift?
- Internal Revenue Service: What's New -- Estate and Gift Tax Form 706 Changes
- Internal Revenue Service: Publication 502 -- Medical and Dental Expenses
- Internal Revenue Service: Topic 502 -- Medical and Dental Expenses
- Internal Revenue Service: Publication 526 -- Charitable Contributions
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."