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For most seniors and retirees, medical expenses are often one of the largest expenditure in their budget.
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Additionally, more and more people find themselves caring for an elderly parent or relative, and expenses for everyone involved are mounting.
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It is, therefore, important to be aware of what kind of tax deductions are there in favor of seniors with high medical expenses.
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- First of all, you can only claim the medical expenses that you paid for during the year if you itemize deductions on your federal tax return. If you take the standard deduction, you can’t claim these expenses.
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You can include all the qualified medical costs that you paid for during the year. However, you can claim deductions for unreimbursed medical expenses (those which are not covered by health insurance) that exceed 10% of your adjusted gross income (AGI). Previously, the law permitted deductions for unreimbursed expenses in excess of 7.5% of your adjusted gross income.
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There is a temporary exemption for individuals age 65 and older until Dec. 31, 2016. If you are 65 years or older, you may continue to deduct total medical expenses that exceed 7.5% of your AGI through 2016. If you are married and only one of you is age 65 or older, you may still deduct total medical expenses that exceed 7.5% of your AGI. This exemption is temporary. Beginning Jan. 1, 2017, the 10% threshold will apply to all taxpayers, including those over 65.
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While a lot of itemized deductions are affected by the itemized deduction limitation, some, such as medical expenses, investment interest and gambling losses, are not subject to the limit.
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You can count the medical and dental expenses paid on behalf of yourself, your spouse, and/or dependents (like your children.) in their grand total.
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To be able to claim another person’s medical expenses on a tax return, you must pay over half of the person’s financial support, and be related to that person or lived with that person for a full calendar year. Where more than one person has assisted with the costs of medical care, only one person may claim the deduction and it should be based upon an agreement among the parties providing the financial support.
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Medical and dental expenses include a wide range of expenditures, some of which are not immediately obvious. For instance, if a senior is certified as chronically ill, the list of eligible expenses is expanded.
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Here are some examples of eligible, but less common, medical expenses.
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- You can include in medical expenses amounts you pay for special equipment installed in a home, or for improvements, if their main purpose is medical care. The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of your property - the difference is the medical expense. If the value of your property is not increased by the improvement, the entire cost is included as a medical expense.
Some of the eligible improvements are: constructing entrance or exit ramps for your home; widening doorways at entrances or exits to your home; installing railings, support bars, or other modifications to bathrooms; installing porch lifts and other forms of lifts; modifying stairways; adding handrails or grab bars; grading the ground to provide access to the residence.
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- You can include amounts paid for qualified long-term care services like: diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services that are required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care professional.
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- You can include qualified long-term care premiums up to the following amounts.
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a. |
Age 40 or under – $370. |
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b. |
Age 41 to 50 – $700. |
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c. |
Age 51 to 60 – $1,400. |
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d. |
Age 61 to 70 – $3,720. |
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e. |
Age 71 or over – $4,660. |
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- The cost of medical care in a nursing home, home for the aged, or similar institution is also a deductible medical expense. This includes the cost of meals and lodging in the home if a principal reason for being there is to receive medical care.
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- You can include in medical expenses wages and other amounts you pay for nursing services. The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. These services can be provided in your home or another care facility. You can include as a medical expense social security tax, FUTA, Medicare tax, and state employment taxes you pay for a nurse, attendant, or other person who provides medical care.
Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses.
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- You can also include in medical expenses any amounts paid for transportation primarily for, and essential to, medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 23.5 cents per mile for 2014.
You cannot claim a tax deduction for medical expenses you paid for with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free. This rule prevents two tax benefits for the same expense.
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If you would like to find out more about medical and dental expenses, as well as selected topics that are of interest to senior taxpayers, you can go to the IRS website and look for Publication 502, Medical and Dental expenses, and Publication 554, Tax Guide for Seniors.
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There is also a new tool that you can use on the IRS website, namely the Interactive Tax Assistant to see if you can deduct your medical expenses.
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Even with a lot of patience and time on your hands to read and get up-to-date with all the IRS regulations, claiming of medical expenses and deductions should be made with the assistance of a tax professional, as well as all your other dealings with the IRS.
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