Medical Expenses

In 2021, all individuals may deduct qualified medical expenses that exceed 7.5% of AGI for the year. You may be able to maximize your deduction in spite of the limitation by “bunching” your discretionary medical expenses and procedures into one year.

Deductible medical expenses include health insurance premiums, fees for medical and dental services, prescription drug expenses, and other related expenses including capital improvements needed to your home for medical reasons (get a statement from your doctor); and cosmetic surgery that improves the body's functioning.

In general, prescription drugs are fully deductible. Note that Flexible Spending Accounts (FSAs), Health Saving Accounts (HSAs), and Health Reimbursement Arrangements (HRAs) cannot reimburse workers for unprescribed over-the-counter drugs. Only prescriptions and insulin are reimbursable.

Medicare Part B and D payments are deductible as medical expense deductions. Costs of physician-prescribed weight loss plans and prescriptions to treat obesity, or prescribed in connection with another malady, are deductible under the percentage-of-AGI rule. The cost of diagnosing (e.g., pregnancy test kits, electronic body scans, or annual physicals), preventing, or treating a specific disease may be deductible.

Refundable entry fees to continuing care facilities are not deductible, but a deduction is allowed for the medical related portion of non-refundable monthly fees. You may be able to deduct medical expenses you pay for a parent for whom you pay more than half the support, even if the parent lives separately.

Long-Term Care

Long-term-care insurance may be especially valuable in protecting a parent’s home and other assets. You might buy the insurance for your parent and possibly deduct all or some of the cost. An insurance policy that covers the cost of care that may be needed later in life can be an important retirement and estate planning component. Tax laws allow you to deduct a portion of qualified long-term care insurance premiums based on your current age.

To get the best long-term care insurance rates, consider taking out a policy now to lock in current premiums for the entire coverage period. Compare policy premiums and coverage parameters, as insurance company programs vary.

Medical Expense Reimbursement

Under current law, only medical expenses that exceed 10% of AGI are deductible on your tax return. Since many medical expenses are not covered by insurance plans, paying for them through a flexible spending account with tax-free dollars provides an opportunity for savings.

With a flexible spending account, certain medical expenses become, essentially, tax deductible. Covered expenses include insurance deductibles and copays, doctor’s office visits, dental and orthodontia expenses, vision care, eye surgery, prescription drugs, and medical transportation costs.

If you pay for medical and dental care for you, your spouse and your dependents, you may be able to deduct those medical expenses that are more than 10% of your AGI. So if your AGI is $100,000, you can deduct medical expenses that exceed $10,000.