For 2013, the medical deduction can only be claimed to the extent your unreimbursed costs that exceed 10% of your adjusted gross income (AGI), up from 7.5% of AGI in 2012. However, the more favorable 7.5%-of-AGI threshold continues to apply through 2016 if you or your spouse has reached age 65 before the end of the tax year. Please be aware that the threshold for NJ income tax purposes is only 2% of NJ gross income, so it is quite likely that you may qualify for a NJ medical tax deduction, even if you don’t qualify for a Federal medical tax deduction.
Qualifying costs include many items other than hospital and doctor bills, and often amount to much larger figures than expected. Here are some items you should take into account in determining your medical costs:
1. Health insurance premiums. The cost of health insurance is a medical expense. This item, by itself, can total thousands of dollars a year. Even if your employer provides you with health coverage, you can deduct the portion of the premiums that you pay. Long-term care insurance premiums are also included in medical expenses, subject to specific dollar limits based on age.
If you are self-employed (which includes being a shareholder in an S-corporation or a partner in a partnership), you can deduct 100% of your health insurance premiums on page 1 of your tax return (a deduction, regardless of whether you can itemize your deductions on Schedule A), provided you have net positive self-employment income.
2. Transportation. The cost of getting to and from medical treatment is a medical expense. This includes taxi fares, public transportation, or the cost of using your own car. Car costs can be calculated at 23¢ a mile for miles driven in 2012 (24¢ a mile for miles driven in 2013), plus tolls and parking, or by using your actual costs such as for gas and oil (but not general costs such as insurance, depreciation, or maintenance).
3. Therapists, nurses, etc. The services of individuals other than doctors can qualify as long as the services relate to a medical condition and aren’t for general health. For example, costs of physical therapy after knee surgery would qualify. On the other hand, costs of a fitness counselor to tone you up would not qualify. Amounts paid for certain long-term care services required by a chronically ill individual also qualify as deductible medical expenses.
4. Eyeglasses, hearing aids, dental work, psychotherapy, prescription drugs. Deductible medical expenses include the cost of glasses, hearing aids, dental work, psychiatric counseling, and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify. Prescription drugs (including insulin) qualify, but items such as aspirin and vitamins don’t. Neither do amounts paid for operations or treatments that are illegal under federal law (such as marijuana), even if state or local law permits the procedure or drug.
5. Smoking-cessation programs. Amounts paid for participation in a smoking-cessation program and for prescribed drugs designed to alleviate nicotine withdrawal are deductible expenses for medical care. However, non-prescription nicotine gum and certain nicotine patches aren’t deductible.
6. Weight-loss programs. A weight-loss program may be a deductible medical expense if undertaken as treatment for a disease diagnosed by a physician. The disease can be obesity itself or another disease, such as hypertension or heart disease, for which the doctor directs you to lose weight. It’s a good idea to get a written diagnosis before starting the program. Deductible expenses include fees paid to join the program and to attend periodic meetings. However, the cost of low-calorie food that you eat in place of your regular diet isn’t deductible.
7. Dependents and others. You can deduct the medical costs that you pay for your dependents (your children, for example). Additionally, you may be able to deduct medical costs you pay for an individual, such as an elderly parent or grandparent or a “twenty-something” child, who would qualify as your dependent except that he has too much gross income or files jointly. In most cases, the medical costs of a child of divorced parents can be claimed by the parent who pays them, regardless of who gets the dependency exemption.
In summation, medical costs are fairly broadly defined for deduction purposes. If you believe you may qualify for a deduction or have any questions, please contact us at (908) 782-7900 or email firstname.lastname@example.org.