Unreimbursed medical expenses are healthcare costs you pay out-of-pocket that aren't covered by insurance or other programs. You may deduct them on your federal income tax return if they exceed 7.5% of your adjusted gross income.
The IRS allows deductions for unreimbursed medical expenses under certain conditions. To qualify, expenses must be for diagnosis, cure, mitigation, treatment, or prevention of disease. They must also be primarily for the alleviation of a physical or mental defect or illness.
For example, if you paid $5,000 in unreimbursed medical expenses and your adjusted gross income was $50,000, you'd subtract 7.5% of $50,000 ($3,750) from $5,000. The remaining $1,250 is the amount you can deduct.
Unreimbursed medical expenses include:
Note that cosmetic procedures generally don't qualify unless they're necessary for medical reasons.
Many people confuse unreimbursed medical expenses with out-of-pocket costs covered by flexible spending accounts (FSAs) or health savings accounts (HSAs). FSAs and HSAs allow you to set aside pre-tax dollars for medical expenses, but those expenses aren't deductible on your tax return because you've already received tax benefits.
Another misconception is that all medical expenses qualify. The IRS specifies that only expenses not covered by insurance or other reimbursement programs count. For example, if your insurance covers 80% of a $1,000 medical bill, you can only deduct the remaining $200 you paid out-of-pocket.
Let's say you had the following unreimbursed medical expenses in a year:
Your adjusted gross income is $60,000. The IRS threshold is 7.5% of your AGI, which is $4,500. Since your unreimbursed medical expenses ($3,500) are less than $4,500, you cannot deduct them. However, if your expenses were $5,000, you could deduct $500 ($5,000 - $4,500).
Last year, I had to pay for several dental procedures that weren't fully covered by my insurance. After calculating my adjusted gross income and applying the 7.5% threshold, I was able to deduct a portion of those expenses. It was a straightforward process, but I had to keep detailed records and receipts to ensure accuracy.