8548 / When is an individual taxpayer entitled to a deduction for medical expenses?

Editor’s Note: The IRS announced that personal protective equipment (PPE), such as face masks, hand sanitizer and disinfecting cleaners/wipes now count as qualified medical expenses under IRC Section 213(d). Taxpayers are, therefore, entitled to use funds from a health FSA, Archer MSA, HSA or HRA to purchase those supplies on a pre-tax basis, as long as the PPE is purchased primarily to prevent the spread of COVID-19. This change is made retroactive to January 1, 2020, although many plans will not require an amendment if the plan allows for reimbursement for all qualified Section 213(d) expenses. If an amendment with retroactive effect was necessary, it had to be made by December 31, 2022.¹

A taxpayer who itemizes deductions can deduct unreimbursed expenses for “medical care” (the term “medical care” includes dental care) and expenses for prescribed drugs or insulin for himself, a spouse and dependents. The deduction is only allowed to the extent that such expenses exceed 7.5 percent of adjusted gross income for the tax year (the Consolidated Appropriations Act of 2021 permanently decreased this amount to 7.5 percent from 10 percent). (On a joint return, the percentage floor amount is based on the combined adjusted gross income of the two spouses.)

To determine whether the taxpayer is entitled to a deduction, the taxpayer first determines net unreimbursed expenses by subtracting all reimbursements received during the year from total expenses for medical care paid during the year. The taxpayer must then subtract 7.5 percent of the taxpayer’s adjusted gross income from net unreimbursed medical expenses. Only the balance, if any, is deductible.² The deduction for medical expenses is not subject to the phase-out in itemized deductions for certain upper income taxpayers that applied prior to 2018. (See Q 8527.)

“Medical care” is defined as amounts paid: (a) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body; (b) for transportation primarily for and essential to such medical care; (c) for qualified long-term care services; or (d) for insurance covering such care or for any qualified long-term care insurance contract.³