Tax Deductions - Qualifying Medical Expenses

Medical expenses, including mileage for medical travel, are an allowable tax deduction. There are however, various rules that apply to this qualification. Firstly, the IRS provides a list of the medical costs that qualify for the deduction. You can get this list from the IRS website. However, because the list keeps changing every now and then with new inclusions and exclusions, it is wise to check the website every so often to keep updated on these changes. Secondly, the medical deduction is an itemized tax deduction and can therefore, be claimed by a taxpayer who chooses to itemize their deductions. The amount of medical expense that is deductible is the excess of 7.5% of one's Adjusted Gross Income (AGI).
History of the Deductible Medical Expense
Tax deduction for medical expense was introduced into the tax code in 1942 under the United States Revenue Act, which began in President Franklin Delano Roosevelt's regime. The initial deductible medical expenses were expenses that were termed as "extraordinary." The law was passed during World War II and was more of a relief for those (namely the veterans of the war) who had gotten into medical complications and incurred medical expenses in relation to the battles. In fact, the law was ideally passed as a temporary law to cater for the war period. However, the deduction outlasted the war and was adjusted in both 1944 and 1954 to make it more of a general medical deduction claim as opposed to a war-related claim. In 1954, the deduction was also moved to Section 213 of the tax code, thus giving it a permanent status. Over the years, the lower limit of the medical expense that one can deduct has changed between 3% to the current 7.5% of the Adjusted Gross Income (AGI). Other changes that have occurred over the years affecting the medical costs deduction are what kinds of medical expenses "qualify" or are allowable for deductions.
Limitations of Medical Deductible Medical
Only a small portion of taxpayers claim the medical expense deduction. There are various reasons for this. Firstly, there are few taxpayers who opt to itemize their tax deductions as opposed to having standard deductions; in the 2010 tax season, only 30% of those who filed returns choose to itemize their deductions. For you to itemize deductions on Section A of the tax returns on Form 1040, you will need to claim the amount that exceeds 7.5% of your AGI. This amount is set to be increased to 10% in 2013. Therefore, if your itemized deductions add up to less than the rate of the standard deduction, it is financially better to go for the standard deduction. For the 2010 tax year, the standard deduction was $5,700.00 for individuals, $11,400.00 for married filing jointly, and $8,400.00 for head of household. Many taxpayers' itemized deductible expenses are less than that of the standard deduction thus, explains the reason for less people opting for itemizing.
Another reason why the medical expenses deduction is not common is that most of the higher-income earners with deductible expenses high enough for itemization will usually have their medical insurance provided by their employer and therefore, they cannot claim against the insurance premiums. However, for the individuals who pay for their own medical insurance, then the premiums can easily qualify as an itemized deduction under the medical expense deduction. The average health insurance premiums for 2009 for example, were at $13,375.00, which is much higher than the standard deduction rate.
 

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IRS CIRCULAR 230 Disclosure:

Under U.S. Treasury Department regulations, we are required to inform you that, unless expressly indicated, any tax advice contained in this post, or any attachment hereto, is not intended or written, to be used, and may not be used to (a)avoid penalties imposed under the Internal Revenue Code (or applicable state or local tax law provisions) or (b)promote, market, or recommend to another party any tax-related matters addressed herein.