Maximizing Your Health Care Deductions: Tips for Older Adults

One of the biggest hurdles older adults face when it comes to managing money and planning for their financial future is the rising stack of medical bills. Out-of-pocket costs are a significant expense for those who are 65+, especially those who are retired. This year, make the most of tax season by claiming those medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI). Set to climb to 10% for 2021, senior organizations that include the AARP pushed for a permanent fix to the rising medical expense deduction. In December 2020, Congress passed a bill lowering the threshold to 7.5% permanently.

How It Works

The first thing you need to do is decide whether you think itemizing your deductions will be more beneficial than receiving the standard deduction, which is higher for those who are at least 65. If you had large unreimbursed medical and dental expenses, paid mortgage interest or real property taxes on your home, had significant unreimbursed casualty or theft losses from a federally declared disaster or made sizable contributions to qualified charities, your allowable itemized deductions may be greater than your standard deduction.

If you itemize your deductions on a Schedule A (Form 1040), you may be able to deduct expenses you paid that year for medical and dental care for yourself, a spouse and dependents. You may deduct only the amount of your total medical expenses that exceed 7.5% of your AGI — gross income minus adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions and other income. Adjustments to income include contributions to a retirement account. So if your AGI is $50,000, your medical expenses for the year must exceed $3,750.

Deductible Medical Expenses

Medical expenses that are tax-deductible include a broad range of services, including (but not limited to) the following payments:

  • Fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and nontraditional medical practitioners
  • Inpatient hospital care or residential nursing home care (as long as the availability of medical care is the principal reason for being in the nursing home), including the cost of meals and lodging charged by the facility
  • Acupuncture treatments
  • Inpatient treatment at a center for alcohol or drug addiction or for participation in a smoking-cessation program and for drugs to alleviate nicotine withdrawal that require a prescription
  • Weight-loss programs for specific diseases diagnosed by a physician, including obesity
  • Insulin and drugs that require a prescription
  • False teeth, reading or prescription glasses, contact lenses, hearing aids, crutches and wheelchairs
  • Guide dogs or other service animals
  • Oxygen and oxygen equipment
  • Transportation costs essential to medical care, such as fare for a taxi, bus, train, ambulance or gas/oil and standard mileage rate for your personal vehicle, as well as cost of tolls and parking
  • Insurance premiums paid for policies that cover medical care or a long-term care insurance policy covering qualified long-term care services

In addition, if you’re self-employed and have a net profit for the year, you may be eligible for the self-employed health insurance deduction. This is an adjustment to income, rather than an itemized deduction, for premiums paid on a health insurance policy covering medical care, including a qualified long-term care insurance policy for yourself, your spouse and dependents. If you don’t claim 100% of your paid premiums, you can include the remainder with your other medical expenses as an itemized deduction.

What You Can’t Claim

Expenses that are not tax-deductible include:

  • Ordinary payments for diet food items or health club dues
  • Funeral or burial expenses
  • Nonprescription medicines
  • Toothpaste, toiletries and cosmetics
  • Trips or programs for the general improvement of your health
  • Most cosmetic surgeries
  • Nicotine gum or patches that don’t require a prescription
  • Health Savings Account (HSA) payments for medical expenses
  • Life insurance or income protection policies
  • Pre-taxed flexible spending account reimbursements for medical expenses

If you’re an employee, don’t include in medical expenses the portion of your premiums treated as paid by your employer. Employer-sponsored premiums paid under a premium conversion, cafeteria plan or any other medical and dental expenses paid by the plan aren’t deductible unless the premiums are included in box 1 of your Form W-2, Wages and Tax Statement.

Timeline for Tax Deductions

You can only include medical expenses paid during that tax year. So you need to pay attention to the date a bill was paid, not the date the service was provided. For example, if you had an appointment or procedure in 2021, but you didn’t pay the bill until 2022, you could include that expense on your itemized deduction for 2022. However, if your appointment was in 2022, but you paid the bill in 2023, you need to wait until you file your 2023 taxes to claim that expense.

Experience Hassle-Free Aging for your Loved One With Upside

Planning for a smooth tax season, as well as your financial future, can be one of the most difficult things you ever experience. At Upside, we understand the difficulties you’ll be facing and are dedicated to removing the barriers that prevent you or a loved one from living a stress-free, elevated lifestyle. Speak to an Upside Manager today to discover our expertise in creating an all-inclusive housing experience for older adults.

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