Tax benefits for your medical expenses
If you faced unforeseen medical expenses this previous year, if you lost your health insurance, or if you incurred out of pocket medical cost due to the pandemic, you may be able to get tax relief for those expenses. In this article, the various tax reliefs available to taxpayers with medical bills.
Medical expense tax deduction
The Internal Revenue Service (IRS) allows you to deduct qualified medical expenses that you paid during the tax year for your yourself , your spouse and for individuals you claim as dependents on your tax return (such as your children)– if the total amount of expenses exceeds 7.5% of your adjusted gross income.
Qualified deductible medical expenses include:
• fees to doctors, dentists, eye specialists, chiropractors, hospitals,
• expenses for preventive care,
• prescription medications,
• wheelchairs, service animals,
• medical lodging up to $50 per night per person,
• medical mileage incurred on your car at $0.17 per mile,
• and any covid related expenses that are not reimbursed by your insurance.
For the complete list of deductible expenses – https://www.irs.gov/taxtopics/tc502
Health tax deduction for the self employed
If you are self-employed, you can deduct 100% of your health insurance premiums from your business profit. You do not need to itemize to claim the deduction.
Read more for other deductions for self-employed individuals: https://www.kbfinancials.biz/additional-tax-deductions-for-self-employed-individuals.html
Health tax benefits with the health savings account (HSA)
An HSA is a tax-exempt account set up with a qualified trustee (such as your bank, your employer, or your insurance company) to pay for your medical expenses. The account offers many tax advantages:
• The income earned in the account grows tax free
• The employer’s contribution to your account is tax free
• The account balance stays with you even if you change employers or retire
• The distributions from the account to pay for medical costs are tax free
Health marketplace refundable tax credit
The premium tax credit is a refundable tax credit that helps individuals with low income to afford health insurance purchased through the Marketplace. If your household income is less than four times the federal poverty line, you may be entitled to a tax credit. For tax year 2020 households with income below $48K for a single individual and households with income below $104K for a household of 4 would qualify for the tax credit.
Read more about the marketplace: To visit the marketplace: https://www.healthcare.gov
Because your health insurance premiums can be expensive, you want to find the sweet spot between sufficient coverage and over insuring. Health care is a dynamic and complicated industry and it can affect your taxes in a number of ways. To understand how your health costs impact your tax return, contact Karine Bauer, EA. As always, the views contained in this article are not tax or legal advice and are not a substitute for consulting with a tax professional. Karine Bauer, EA is an Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. Karine Bauer, EA is an experienced tax professional with more than 20 years of international experience.
Bear in mind the date of this article as tax law evolves over time.
Updated on 03/20/2021