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Medical Care
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Medical care means amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body. The medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. The following provides details to special issues related to medical care expenses. However, keep in mind, there are income restrictions limiting the medical deductions.

Health Savings Accounts Offers Tax Breaks
Medical Checklist
Adoption Related Medical Expenses
Alcohol and Drug Addiction Treatment
Cosmetic Surgery
Dependents & Medical Expenses
Eldercare Medical Expenses
Impairment-Related Expenses
Insurance Premiums
Long-Term Care Insurance
Medical Travel
Nursing Care
Special Education & Schools
Smoke Cessation Programs
Surrogate Mother Expenses
Weight-Loss Programs

A popular website for medical information is WebMD.

Limitations Restricting Medical Deductions


There are basically two limitations restricting a deduction for medical expenses.

You must itemize your deduction, and

You can deduct only the amount of your medical and dental expenses that is more than 7.5% of your adjusted gross income. If, for example, your only income for the year was $50,000 from wages and there were no adjustment to your income, your adjusted gross income would be $50,000 and 7.5% of that amount would be $3,750. If your medical expenses totaled $5,000, you would be able to deduct $1,250 for medical ($5,000 - $3,750). In the same example, if your medical expenses were less than $3,750, there would be no deduction allowed and no need to list the medical expenses on your tax return.

Health Savings Accounts Offer Tax Breaks


At the end of 2003, the President signed into law the Medicare Act of 2003. One of the key provisions of that legislation was the creation of the Health Savings Account (HSA). Simply described, a Health Savings Account is a trust account where tax-deductible contributions can be made by qualified taxpayers who have high deductible medical insurance plans. Income earned on the HSA balance is income-tax-free. The funds from these accounts are then used to pay “qualified medical expenses” not covered by the medical insurance for an “eligible individual.” If these funds are not used, they roll over year to year. At age 65, the funds can be used like a retirement plan (taxable when withdrawn, but not subject to a withdrawal penalty) or continue to be saved for future medical expenses. Since the contribution is an above-the-line deduction, a taxpayer need not itemize to take advantage of this new tax break. The rules discussed here are applicable to Federal tax returns and may not apply to your particular state.

Eligible Individual – The new law defines an eligible individual as one who is covered by a “high deductible plan” and, while covered by that high deductible plan, is not also covered by another plan that does not have a high deductible. For purposes of determining if there is coverage that does not have a high deductible, the new law allows certain types of coverage such as worker’s compensation, insurance for a specific condition, dental care, vision, long-term care and certain others to be disregarded.

High Deductible Plans – High deductible plans are defined as those with the following deductible amounts:

-Self-only coverage with an annual deductible of $1,000 or more and limits on annual expenses, other than premiums, required to be paid by the plan during the year, up to $5,000; or

- Family coverage with an annual deductible of $2,000 or more and limits on annual expenses, other than premiums, required to be paid by the plan during the year, up to $10,000.

Qualified Medical Expenses – Qualified medical expenses that can be paid from these accounts are generally defined as those that would be allowable as a medical deduction on your tax return.

Contribution Limits - The eligibility and contribution amounts for these accounts are determined monthly. Therefore, during any month in which you qualify, you would be entitled to contribute 1/12 of the annual limits. For 2004, the annual limits are the lesser of the policy annual deductible or:

-$2,600 for single coverage plans,

- $5,150 for family coverage plans, and

- $500 additional for individuals age 55 or older.

Individuals entitled to benefits under Medicare and those claimed as a dependent on another person's tax return cannot make contributions. Contributions can be made as late as the due date of the tax return without extensions, and contributions in excess of the allowable amounts are subject to an annual 6% excise penalty. If your employer makes the contributions for you through a payroll deduction plan, the contributed amounts are not subject to normal payroll withholdings such as FICA and income taxes.


Example: John, a single taxpayer, age 58, begins a high deductible health plan with an annual deductible of $5,000 starting in March of 2004. We need to determine his maximum annual contribution limit ($3,100), which is the smaller of the deductible amount or $3,100 ($2,600 plus $500 for being over 55). Next, we divide the annual limit by 12 to determine the monthly limit, and in John’s case, it is $258.33 ($3,100/12). Since John was in a high deductible health plan for 10 months during 2004, his contribution limit for 2004 would be $2,583.30 ($258.33 x 10). If John were in the 25% tax bracket, John would realize a tax savings of $646.

Medical Check List


The following is a checklist of medical expenses. The list is by no means all-inclusive and some of the deductions listed may have additional restrictions not included here. Please call this office with questions regarding these or other potential medical deductions.

  • Ambulance
  • Artificial Limb
  • Artificial Teeth
  • Birth Control Pills
  • Braille Books and Magazines
  • Abortion - Legal
  • Acupuncture
  • Alcoholism
  • Chiropractor
  • Christian Science Practitioner
  • Contact Lenses
  • Crutches
  • Dental Treatment
  • Drug Addiction
  • Drugs
  • Eyeglasses
  • Fertility Enhancement
  • Guide Dog
  • Hearing Aids
  • Hospital Services
  • Impairment-Related Expenses
  • Insurance Premiums
  • Laboratory Fees
  • Laser Eye Surgery
  • Lead-Based Paint Removal
  • Learning Disability

Medical Expenses Relating to Adoption


Medical expense payments made by an adopting parent for medical services rendered to a child even before the child was placed in the parent's home are deductible if:

The child is a dependent of the adopting parent when services are rendered or paid, and

The expenses are paid by the parent, or agent, for the medical care of the child, and

They are not reimbursement for expenses by the adoption agency prior to adoption negotiations, and

The expenses are shown to be directly attributable to the medical care of the child.

Adoptive parents cannot deduct the natural mother's childbirth expenses.

Alcoholism & Drug Addiction


You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for alcohol or drug addiction. This includes meals and lodging provided by the center during treatment.

You can also include in medical expenses transportation costs you pay to attend meetings of an Alcoholics Anonymous Club in your community, if your attendance is pursuant to medical advice that membership in the Alcoholics Anonymous Club is necessary for the treatment of a disease involving the excessive use of alcoholic liquors.

Cosmetic Surgery


Generally, cosmetic surgery is not a deductible medical expense. Cosmetic surgery is defined as any procedure, which is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.

However, cosmetic surgery or other similar procedures can be taken into account as a medical expense, if the surgery or procedure is necessary to ameliorate a deformity arising from or directly-related to a:

  • Congenital abnormality,
  • Personal injury resulting from an accident or trauma, or
  • Disfiguring disease.

Dependents & Medical Expenses


Medical Dependents - Medical expenses paid for dependents may be deducted. To claim these expenses, the person must have been a dependent either at the time the medical services were provided, or at the time the expenses were paid. A person generally qualifies as a medical dependent for purposes of the medical expense deduction if:

  1. That person lived with the taxpayer for the entire year as a member of the household or is related,
  2. That person was a U.S. citizen or resident, or a resident of Canada or Mexico for some part of the calendar year in which the tax year began, and
  3. The taxpayer provided over half of that person's total support for the calendar year. Medical expenses of any person who is a dependent may be included, even if an exemption for him or her cannot be claimed on the return.

Child of Divorced or Separated Parents - If either parent can claim a child as a dependent under the rules for divorced or separated parents, each parent can include the medical expenses he or she pays for the child. This is true even if the other parent claims the exemption for the child.

Support Claimed Under a Multiple Support Agreement - A multiple support agreement is used when two or more people provide more than half of a person's support, but no one alone provides more than half. Whoever is considered to have provided more than half of a person's support under such an agreement can deduct medical expenses paid.

Any medical expenses paid by others who joined in the agreement cannot be included as medical expenses by anyone.

Eldercare Can Be a Medical Deduction


With people living longer, many find themselves becoming the care provider for elderly parents, spouses and others who can no longer live independently. When this happens, questions always come up regarding the tax ramifications associated with the cost of nursing homes or in-home care.

Generally, the entire cost of nursing homes, homes for the aged, and assisted living facilities are deductible as a medical expense, if the primary reason for the individual being there is for medical care or the individual is incapable of self-care. This would include the entire cost of meals and lodging at the facility. On the other hand, if the individual is in the facility primarily for personal reasons, then only the expenses directly related to medical care would be deductible and the meals and lodging would not be a deductible medical expense.

As an alternative to nursing homes, many care providers are hiring day help or live-in employees to provide the needed care at home. When this is the case, the services provided by the employees must be allocated between household chores and deductible nursing services. To be deductible, the nursing services need not be provided by a nurse so long as the services are the same services that would normally be provided by a nurse such as administering medication, bathing, feeding, dressing etc. If the employee also provides general housekeeping services, then the portion of employee's pay attributable to household chores would not be a deductible medical expense.

Household employees, like other employees, are subject to Social Security and Medicare taxes, and it is the responsibility of the employer to withhold the employee's share of these taxes and to pay the employer's payroll taxes. Special rules for household employees greatly simplify these payroll withholding and reporting requirements and allow the Federal payroll taxes to be paid annually in conjunction with the employer's individual 1040 tax return. Federal income tax withholding is not required unless both the employer and the employee agree to withhold income tax. However, the employer is still required to issue a W-2 to the employee and file the form with the Federal government. A Federal Employer ID Number and a state ID number must be obtained for reporting purposes. Most states have special provisions for reporting and paying state payroll taxes on an annual basis that are similar to the Federal reporting requirements.

If you need assistance in setting up a household payroll, please contact this office for additional details and filing requirements.

Impairment-Related Expenses


Amounts paid for special equipment installed in the home or for improvements may be included in medical expenses, if their main purpose is medical care for the taxpayer, the spouse, or a dependent. The cost of permanent improvements that increase the value of the property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of the property. The difference is a medical expense. If the value of the property is not increased by the improvement, the entire cost is included as a medical expense.

Certain improvements made to accommodate a home to a taxpayer's disabled condition, or that of the spouse or dependents who live with the taxpayer, do not usually increase the value of the home and the cost can be included in full as medical expenses. These improvements include, but are not limited to, the following items:

Constructing entrance or exit ramps for the home,

Widening doorways at entrances or exits to the home,

Widening or otherwise modifying hallways and interior doorways,

Installing railings, support bars, or other modifications,

Lowering or modifying kitchen cabinets and equipment,

Moving or modifying electrical outlets and fixtures,

Installing porch lifts and other forms of lifts but generally not elevators,

Modifying fire alarms, smoke detectors, and other warning systems,

Modifying stairways,

Adding handrails or grab bars anywhere (whether or not in bathrooms),

Modifying hardware on doors,

Modifying areas in front of entrance and exit doorways, and

Grading the ground to provide access to the residence.

Only reasonable costs to accommodate a home to a disabled condition are considered medical care. Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses.

Insurance Premiums


You can include in medical expenses insurance premiums you pay for policies that cover medical care. Policies can provide payment for:

Hospitalization, surgical fees, x-rays, etc.,

Prescription drugs,

Adding handrails or grab bars anywhere (whether or not in bathrooms),

Modifying hardware on doors,

Modifying areas in front of entrance and exit doorways, and

Grading the ground to provide access to the residence.

Pre-tax dollars
You cannot deduct insurance premiums paid with pre-tax dollars because the premiums are not included in your wages. If you have a policy that provides more than one kind of payment, you can include the premiums for the medical care part of the policy.

Employer-sponsored health insurance plan
Do not include in your medical any insurance premiums paid by your employer-sponsored health insurance plan, unless the premiums are included in your wages.

Medicare B
Medicare B is a supplemental medical insurance. Premiums you pay for Medicare B are a deductible medical expense.

Prepaid insurance premiums
Premiums you pay before you are age 65, for insurance for medical care for yourself, your spouse, or your dependents after you reach age 65, are medical care expenses in the year paid, if they are:

  1. Payable in equal yearly installments, or more often, and
  2. Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years).

You cannot include premiums you pay for:

Life insurance policies,

Policies providing payment for loss of earnings,

Policies for loss of life, limb, sight, etc.

Policies that pay you a guaranteed amount each week for a stated number of weeks if you are hospitalized for sickness or injury, or

The part of your car insurance premiums that provides medical insurance coverage for all persons injured in or by your car because the part of the premium for you, your spouse, and your dependents is not stated separately from the part of the premium for medical care of others.

Long-Term Care


Amounts paid for long-term care services and certain premiums paid on long-term care insurance are deductible as medical expenses on Schedule A. Costs of care provided by a relative who is not a licensed professional or by a related corporation or partnership don't qualify. The maximum amount of long-term care premiums treated as medical depends on the insured's age and is inflation-indexed annually. The following are the deductible amounts for the past few years. If the taxpayer paid long-term care premiums and qualifies for a medical deduction on Schedule A of their tax return and did not include them in their medical deduction, the return can be amended to include the deduction. Please call this office to see if the deduction will make a difference and to have us prepare the amended returns.

Employees generally won't be taxed on the value of coverage under employer-provided long-term care plans. However, the exclusion doesn't apply if coverage is provided through a cafeteria plan. In addition, long-term care services can't be reimbursed tax-free under a flexible spending account.

The "Long-term contract" is an insurance contract that provides only coverage of long-term care and meets certain other requirements. Some long-term care riders to life insurance will also qualify. Benefits under a long-term care policy after '96 (other than dividends or premium refunds) are generally tax-free. For per-diem contracts that pay a flat-rate benefit without regard to actual long-term care expenses incurred, the exclusion is limited to $175 a day, indexed for medical cost inflation (amount was $210 in 2002) except when long-term care costs incurred are more than the flat rate and are not otherwise compensated by some other means.

A contract isn't treated as a qualified long-term care contract unless the determination of being chronically ill takes into account at least five activities of daily living-eating, toileting, transferring, bathing, dressing and continence.

"Long-term care services" include necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, maintenance or personal care services prescribed by a licensed practitioner for the chronically ill.

A "Chronically ill person" is one who has been certified by a licensed healthcare practitioner within the previous 12 months as: (1) unable to perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing, continence) without substantial assistance for a period of 90 days due to loss of functional capacity, (2) having a similar level of disability as determined in regulations, or (3) requiring substantial supervision to protect from threats to health and safety due to severe cognitive impairment. The requirement that a qualified long-term care insurance contract must base its determination of whether an individual is chronically ill by taking into account five activities of daily living applies only to (1) above (being unable to perform at least two activities of daily living).

Medical Travel Expenses


Auto Travel - Deduction is allowed at a specified cents per mile rate (see table) or for actual cost of gas and oil (not repairs, maintenance, depreciation, lease fees, etc.)

Trips - Amounts paid for transportation to another city may be included in medical expenses, if the trip is primarily for, and essential to, receiving medical services. Up to $50 per night for lodging may be included. A trip or vacation taken merely for a change in environment, improvement of morale, or general improvement of health cannot be included in medical expenses, even if the trip is made on the advice of a doctor.

Lodging - The cost of meals and lodging at a hospital or similar institution may be included if the main reason for being there is to receive medical care. Medical expenses may also include the cost of lodging not provided in a hospital or similar institution. The cost of such lodging while away from home may be included if all of the following requirements are met:

  1. The lodging is primarily for and essential to medical care.
  2. The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital.
  3. The lodging is not lavish or extravagant under the circumstances.
  4. There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. The amount included in medical expenses for lodging cannot be more than $50 for each night for each person. Lodging is included for a person for whom transportation expenses are a medical expense, because that person is traveling with the person receiving the medical care. For example, if a parent is traveling with a sick child, up to $100 per night is included as a medical expense for lodging. Meals are not deductible.

Meals - Meals are generally not deductible as a medical expense except as part of inpatient care. As such, they would be included in the cost of the hospital or other medical facility.


Nursing Services


Wages and other amounts paid for nursing services can be included in medical expenses. 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 the home or another care facility.

Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, these amounts 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.

Additionally, certain expenses for household services or for the care of a qualifying individual incurred to allow the taxpayer to work may qualify for the child and dependent care credit. Part of the amounts paid for that attendant's meals are also included in medical expenses. Divide the food expense among the household members to find the cost of the attendant's food. If additional amounts for household upkeep were paid because of the attendant, include the extra amounts with the medical expenses. This includes extra rent or utilities paid because a larger apartment was needed to provide space for the attendant.

Special Schools and Education


You can include in medical expenses payments to a special school for a mentally impaired or physically disabled person, if the main reason for using the school is its resources for relieving the disability. You can include, for example, the cost of:

Teaching Braille to a visually impaired child,

Teaching lip reading to a hearing impaired child, or

Giving remedial language training to correct a condition caused by a birth defect.

The cost of meals, lodging, and ordinary education supplied by a special school can be included in medical expenses only if the main reason for the child's being there is the resources the school has for relieving the mental or physical disability. You cannot include in medical expenses the cost of sending a problem child to a special school for benefits the child may get from the course of study and the disciplinary methods.

Smoke Cessation Programs


The IRS has ruled that unreimbursed amounts paid by taxpayers for participation in smoking-cessation programs and for prescribed drugs designed to alleviate nicotine withdrawal are expenses for medical care that are deductible subject to the 7.5%-of-AGI limitation. However, because of the prohibition of deductions for most non-prescription drugs, no deductions are permitted for the costs of nonprescription nicotine gum and certain nicotine patches.

Surrogate Mother Expenses


Surrogate mother expenses are not specifically addressed in the Tax Code or Regulations. However, the Code does tell us that medical expenses are only deductible for the taxpayer, spouse and dependents. The definition of a dependent for medical purposes ignores the gross income and joint return tests. Therefore, it appears that a surrogate mother's medical expenses can only be deducted if she qualifies as a "medical dependent." The unborn fetus is not a dependent until actually born.

Weight-Loss Program


Weight-Loss Program The IRS has recently ruled that expenses for certain weight-loss programs may be deducted as a medical expense. In order for uncompensated amounts paid by individuals for participation in a weight-loss program to be deductible, the program must be undertaken as treatment for a specific disease or diseases (including obesity) diagnosed by a physician. The costs are not deductible by taxpayers who participate in weight-loss programs to improve their general health or appearance. Further, the cost of purchasing diet food items is not deductible.

Prior to this new 2002 ruling, the IRS took the position that you could only include in medical expenses the cost of a weight-loss program undertaken at a physician's direction to treat an existing disease (such as heart disease).

This new position affects prior returns and returns may be amended to claim qualified expenses. Until April 15th of 2003, the tax returns for 1999 and later years can be amended.