Medical expenses frequently concern expenditures of a medical nature that may be deducted from income tax. What is allowable depends on the country, and in some countries most medical care is paid for by taxes and offered to its residents at low or no cost. In places like the US there are few ways to gain tax benefits from medical expenses. These include using them as part of itemized deductions or participating in plans like health savings accounts (HSAs).
As stated, each region has separate rules about what medical expenses might be considered deductible. In the US, these are highly volatile and subject to change, but presently, rules allow people who itemize deductions to count most medical care exceeding 7.5% of gross family income. Some qualifying care types include health insurance premiums, prescription drugs, medical visits, necessary surgeries, and a variety of allied medical professional services like physical therapy, speech therapy, and psychotherapy. A few noted exclusions include things like voluntary surgery or treatments that aren’t considered medically important, such as cosmetic procedures.
These itemized deductions are subtracted from gross family income so that taxable amount of income is reduced and a lower tax bracket is frequently reached. It’s not difficult to imagine, especially in environments where insurance is hard to obtain or demands a larger share of cost from patients, that medical costs could end up being a big deduction. A one-week stay in a hospital for an uninsured patient might equal the income of some families and might fully reduce adjusted gross income to zero.
Not all people itemize their deductions and there is another method for reducing taxable income by claiming medical expenses. HSAs are employer offered accounts that employees can elect to deposit an agreed upon amount in each year. Money comes directly from people’s paychecks, and reduces the amount of taxable income by the amount of the contribution. Someone placing $200 US Dollars (USD) a month in an HSA reduces their taxable income by $200 USD each month, possibly lowering tax bracket. The amount that gets funneled into these accounts cannot exceed $5000 USD in a year, and this limit is likely to decrease in the future.
A disadvantage of HSAs is money must be used in the year it is collected or it is lost. This is a good system for people with predictable medical expenses. Otherwise, it poses a gamble, if people put a lot aside and don’t end up using it.
The way medical expenses are perceived from a taxation standpoint undergoes change regularly, and in the US this is expected to be the case with new healthcare rules taking effect. These may permit more tax deductions at the same time they eliminate some others, such as the total amount that can be deposited in an HSA. To get the most current information on which medical expenses are deductible, people should consult with their country’s tax franchise board or with a knowledgeable accountant.
