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Tax FAQ:

Health & Medical Tax Issues

Our Health & Medical Tax Issues resources explain tax deductions and benefits related to medical expenses and health insurance.

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Health & Medical Tax Issues

A Health Savings Account (HSA) is a tax-advantaged account that eligible individuals can use to pay or reimburse qualified medical expenses. Contributions may be tax-deductible, earnings generally can grow tax-free, and withdrawals used for qualified medical expenses generally are not taxable.

Generally, you must be covered by an HSA-eligible high-deductible health plan (HDHP), have no disqualifying additional health coverage, not be enrolled in Medicare, and not be claimed as another person’s dependent. Specific eligibility rules should be reviewed for the tax year involved.

Generally, eligible individuals can deduct qualifying HSA contributions from their income, subject to the applicable annual contribution limits. Employer contributions may also receive favorable tax treatment and generally aren’t included in the employee’s taxable income when properly made.

HSA withdrawals used to pay or reimburse qualified medical expenses generally aren’t taxable. If money is withdrawn for nonqualified expenses, the distribution may be taxable and, depending on the taxpayer’s circumstances and age, may also be subject to an additional tax.

Qualified HSA expenses generally include medical, dental, and certain other healthcare costs that meet the applicable tax rules. Examples can include deductibles, copayments, prescriptions, certain medical equipment, and other qualified expenses.

Yes. Many qualified dental and vision expenses can be paid or reimbursed through an HSA, provided they meet the applicable definition of qualified medical expenses.

An HSA generally belongs to the account holder rather than the employer. Changing jobs normally does not cause you to lose the account, and you can generally continue using the funds for qualified medical expenses.

Form 8889, Health Savings Accounts, is generally used to report HSA contributions and distributions and to calculate the HSA deduction and any additional tax that may apply.

Generally, HSA contributions must stop once Medicare coverage begins. However, funds already in the HSA can generally continue to be used for qualified medical expenses, subject to the applicable rules.

HSA funds used for qualified medical expenses can generally continue to be withdrawn tax-free. After age 65, withdrawals for nonqualified expenses generally are taxable as income, but the additional 20% tax generally no longer applies.

Qualifying medical and dental expenses may be deductible if they meet the applicable IRS requirements and are not otherwise reimbursed. The rules depend on the type of expense and the taxpayer’s circumstances.

Certain prescription medicines can qualify as medical expenses for federal tax purposes. Over-the-counter medicines generally have different rules, although some exceptions apply.

Amounts paid for qualifying medical services provided by doctors and other eligible healthcare professionals can generally count toward deductible medical expenses, subject to the applicable limitations.

Qualifying amounts paid for hospital services and other eligible medical care can generally be included in deductible medical expenses, subject to the applicable federal tax rules.

Qualifying dental treatment and other eligible dental expenses can generally be treated as medical expenses for federal tax purposes, subject to applicable limitations.

Prescription eyeglasses and contact lenses generally qualify as medical expenses. Other vision-related expenses may also qualify depending on their nature and the applicable tax rules.

Certain transportation costs incurred primarily for necessary medical care may qualify as medical expenses. Special rules can apply to mileage, parking, tolls, and transportation by certain methods.

Health insurance premiums may receive tax-favored treatment in certain circumstances. For example, qualifying premiums may be deductible as medical expenses or may qualify for a deduction available to certain self-employed individuals, depending on the circumstances.

Potentially. Medical expenses paid for a spouse or qualifying dependent may qualify, provided the applicable dependency and other tax requirements are satisfied.

Generally, for taxpayers using the cash method, medical expenses are considered based on when they are paid, subject to the applicable rules. The year of payment can therefore be important when determining which tax return reports the expense.

Eligible taxpayers who itemize deductions may be able to deduct qualifying unreimbursed medical and dental expenses to the extent those expenses exceed the applicable percentage of adjusted gross income (AGI).

For federal individual income tax purposes, qualifying medical and dental expenses generally are deductible only to the extent that they exceed 7.5% of adjusted gross income for taxpayers who itemize.

Generally, yes. The federal medical and dental expense deduction is generally an itemized deduction reported on Schedule A rather than a deduction available to someone claiming the standard deduction.

Qualifying medical and dental expenses are generally reported on Schedule A (Form 1040), Itemized Deductions, when the taxpayer is eligible to claim the deduction.

Generally, you cannot deduct the portion of a medical expense that was reimbursed or paid by insurance or another source. Only the qualifying amount actually borne by the taxpayer is generally considered.

Potentially. Medical expenses paid for a spouse may qualify if the applicable federal tax requirements are met.

Medical expenses paid for qualifying children or other dependents may be deductible when the applicable requirements are satisfied.

Certain qualified long-term care expenses may qualify as medical expenses, subject to specific limitations and requirements.

Generally, cosmetic procedures that are performed solely to improve appearance are not deductible medical expenses. An exception may apply when a procedure is necessary to treat a deformity arising from a congenital abnormality, accident, trauma, or disfiguring disease.

Keep receipts, invoices, insurance statements, payment records, and documentation showing the nature and amount of the medical expense. You should also retain records showing any reimbursements or amounts paid by insurance.

A qualified medical expense generally is an expense that meets the applicable tax definition of medical care. The exact definition can vary depending on whether the expense is being considered for an HSA, FSA, HRA, or itemized medical deduction.

Generally, prescription medicines qualify as medical expenses. Different rules may apply to nonprescription medicines.

Certain over-the-counter medications may qualify for tax-favored health accounts under applicable rules. The specific treatment depends on the account and the type of expense.

Many dental expenses, including qualifying examinations and treatments, can qualify as medical expenses for purposes of applicable health-related tax rules.

Many vision-related expenses, such as prescription eyeglasses, contact lenses, and qualifying eye care, can qualify.

Certain medical equipment and devices prescribed or required for medical care can qualify as medical expenses.

Certain menstrual care products are treated as qualified medical expenses for purposes of applicable tax-favored health accounts.

Ordinary vitamins and supplements generally do not qualify merely because they are beneficial to general health. Different treatment may apply when a supplement is recommended or required for a specific medical condition under the applicable rules.

Expenses primarily intended to improve appearance generally do not qualify. Treatment that is necessary to address a medical condition or qualifying deformity may receive different treatment.

Generally, HSA funds may be used tax-free for qualified medical expenses of the account holder, spouse, and qualifying dependents, even if the expense is not otherwise deductible as an itemized medical expense.

The self-employed health insurance deduction may allow qualifying self-employed individuals to deduct eligible health insurance premiums from income, subject to specific requirements and limitations.

Generally, individuals who are self-employed and meet the applicable eligibility requirements may qualify. The rules can depend on the type of business, income, and access to employer-sponsored coverage.

Qualifying self-employed individuals may generally be able to deduct eligible health, dental, and certain long-term care insurance premiums, subject to the applicable rules and limitations.

In qualifying circumstances, health insurance premiums paid for a self-employed individual’s spouse may be included in the deduction, subject to the applicable requirements.

Qualifying health insurance premiums for eligible children may potentially be included when determining the self-employed health insurance deduction, subject to the applicable rules.

Generally, qualifying dental insurance premiums may be eligible for the self-employed health insurance deduction when the applicable requirements are met.

Qualifying vision insurance premiums may potentially be deductible when the applicable self-employed health insurance rules are satisfied.

It depends. Access to an employer-sponsored health plan can affect eligibility for the self-employed health insurance deduction. The timing and availability of the employer plan can be important.

Generally, no. When available, the self-employed health insurance deduction is generally treated as an adjustment to income rather than an itemized deduction.

Eligible self-employed individuals generally use Form 7206, Self-Employed Health Insurance Deduction, to calculate the deduction when required for the applicable tax year.

A Flexible Spending Arrangement (FSA) is an employer-established benefit arrangement that can allow employees to use pre-tax amounts to pay or reimburse certain eligible medical expenses, subject to the plan’s rules.

A Health Reimbursement Arrangement (HRA) is an employer-funded arrangement that can reimburse employees for certain qualified medical expenses under the terms of the employer’s plan.

The Premium Tax Credit is a federal tax credit designed to help eligible individuals and families afford health insurance purchased through the Health Insurance Marketplace. Eligibility and the amount of the credit depend on factors including household income and other requirements.

Medicare premiums may qualify as medical expenses for certain taxpayers who itemize deductions. Self-employed individuals may also have different rules depending on their circumstances.

Qualified long-term care insurance premiums may receive tax-favored treatment, but annual limits and other requirements apply. The rules can differ depending on the taxpayer’s age and circumstances.

Certain expenses for medical procedures or treatments related to fertility may qualify as medical expenses when they meet the applicable federal tax requirements.

Qualifying expenses for mental health treatment, such as eligible therapy or psychiatric care, can generally be treated as medical expenses subject to the applicable tax rules.

Certain expenses associated with a service animal may qualify as medical expenses when the animal is used primarily to alleviate or treat a diagnosed physical or mental condition and the applicable requirements are met.

Certain special education expenses may qualify as medical expenses when they meet the applicable requirements, particularly when the education is recommended to address a diagnosed medical condition.

General health, wellness, or nutritional expenses generally are not automatically deductible simply because they promote good health. An expense may receive different treatment when it is specifically related to the diagnosis or treatment of a medical condition and satisfies the applicable requirements.

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