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| The new health care law (like any health care law, for that matter) has an important impact on most people’s lives, no wonder it has been a favorite subject for all the media and will certainly be the subject of more of our newsletters as new IRS rules and regulations unfold. |
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 This newsletter will explain in more detail under what circumstances you can claim your medical and dental expenses on your federal tax return beginning with tax year 2013.
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For all the details on claiming your medical and dental expenses you should consult the IRS Publication 502 (2013), Medical and Dental Expenses. |
| The first thing to consider, as you all know, is that you can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction. |
| Generally, it is up to you to decide whether to itemize deductions or to use the standard deduction. The standard deduction is a dollar amount that reduces the amount of income on which you are taxed. You should itemize deductions if your allowable itemized deductions are greater than your standard deduction. |
Beginning in 2013, your total itemized deductions may be phased out (reduced) if your adjusted gross income exceeds the following threshold amounts for your filing status: |
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- Married filing jointly or qualifying widow(er) - $300,000;
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- Married filing separately - $150,000;
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- Head of household - $275,000.
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Also beginning in 2013, you can claim deductions for your unreimbursed medical expenses (those which are not covered by health insurance) that exceed 10 percent of your adjusted gross income. 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 adjusted gross income 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 adjusted gross income. |
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 Once again, this exemption is temporary. Beginning Jan. 1, 2017, the 10% threshold will apply to all taxpayers, including those over 65.
Here are the most important “can do” and “can’t do” to consider with your medical deduction.
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| You can include only the expenses you paid during that particular tax year, regardless of when the services were provided. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment. |
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You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.
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For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. The term "spouse" includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not called a marriage under state (or foreign) law are not married for federal tax purposes.
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 You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. |
| The cost of prescription drugs and insulin also qualifies. |
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| You may be able to claim the cost of travel for 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 24 cents per mile for 2013. |
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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. |
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| You can include as a medical expense social security tax, FUTA, Medicare tax, and state employment taxes you pay for an attendant who provides medical care. |
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| You can include in medical expenses amounts you pay for a program to stop smoking. However, you cannot include in medical expenses amounts you pay for drugs that do not require a prescription, such as nicotine gum or patches, that are designed to help stop smoking. |
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| You can include in medical expenses amounts you pay to lose weight if it is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease). This includes fees you pay for membership in a weight reduction group as well as fees for attendance at periodic meetings. You cannot include membership dues in a gym, health club, or spa as medical expenses, but you can include separate fees charged there for weight loss activities. |
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 You cannot include the cost of diet food or beverages in medical expenses because the diet food and beverages substitute for what is normally consumed to satisfy nutritional needs. |
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| You cannot include medical expenses that were paid by insurance companies or other sources. This is true whether the payments were made directly to you, to the patient, or to the provider of the medical services. |
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| You can’t claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free. |
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| If you are employed your employer may report the value of the health insurance provided to you on your W-2 in Box 12 with Code DD. However, it is not taxable. |
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| If you have a health flexible spending arrangement (FSA) at work, money you put into it normally reduces your taxable income. If you have a health savings account (HSA) at work, money your employer puts into it for you, within limits, is not taxable. Money you put into an HSA usually counts as a deduction and can lower your taxes. Money you take from an HSA to use for qualified medical expenses is not taxable income; however, withdrawals for other purposes are taxable and can even be subject to an additional tax. |
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| If you have a health reimbursement arrangement (HRA) at work, money you receive from it is generally not taxable. |
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| If you are self-employed, you can deduct the cost of health insurance premiums, within limits, on your income tax return. |
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| If you were self-employed and had a net profit for the year, you may be able to deduct, as an adjustment to income, amounts paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, your dependents, and your children who were under age 27 at the end of 2013. For this purpose, you were self-employed if you were a general partner (or a limited partner receiving guaranteed payments) or you received wages from an S corporation in which you were more than a 2% shareholder. The insurance plan must be established under your trade or business and the deduction cannot be more than your earned income from that trade or business. |
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| Whether employed or self-employed, you must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. This includes payments from Medicare. Even if a policy provides reimbursement only for certain specific medical expenses, you must use amounts you receive from that policy to reduce your total medical expenses, including those it does not reimburse. |
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| Generally, you do not reduce medical expenses by payments you receive for permanent loss or loss of use of a member or function of the body (loss of limb, sight, hearing, etc.) or disfigurement to the extent the payment is based on the nature of the injury without regard to the amount of time lost from work, or loss of earnings. |
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| Once you have determined which medical expenses you can include, figure and report the deduction on your tax return. |
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| You have to report your medical expense deduction on Schedule A, Form 1040. You cannot claim medical expenses on Form 1040A, U.S. Individual Income Tax Return, or Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents. |
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| If you are not experienced in doing your own returns, be very careful when itemizing your deductions. Consider hiring a tax professional in all your dealings with the IRS. |
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