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 was 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
The IRS has ruled that amounts paid for diagnostic and certain similar procedures and devices are deductible medical care expenses, provided that they are not compensated by insurance or otherwise, even though the individuals had no symptoms of illness prior to incurring the expense. According to the IRS, this includes an annual physical examination, a full-body electronic scan and a pregnancy test.4
The term "medical care" does not include cosmetic surgery or other similar procedures unless necessary to correct a deformity resulting from a congenital abnormality, a personal injury resulting from accident or trauma, or a disfiguring disease.5 Despite this general rule, in Al-Murshidi v. Commissioner,6 the surgical removal of excess skin from a formerly obese individual was not found to be "cosmetic surgery" for purposes of IRC Section 213(d)(9)(A) because the procedures meaningfully promoted the proper function of the individual's body and treated her disease. Therefore, the costs of the surgical procedures were deductible despite the "cosmetic surgery" classification given to the procedures by the surgeon.
The Social Security hospital tax that an individual pays as an employee or self-employed person cannot be deducted as a medical expense.7 Conversely, a 65-year-old who has signed up for the supplementary medical plan under Medicare can treat monthly premiums as amounts paid for insurance covering medical care.8 Premiums paid for Medicare Part D, the voluntary prescription drug insurance program that went into effect on January 1, 2006, are included in the definition of medical expenses.9
The unreimbursed portion of an entrance fee for life care in a residential retirement facility that is allocable to future medical care is also deductible as a medical expense in the year paid (but, if the resident leaves the facility and receives a refund, the refund is includable in gross income to the extent it is attributable to the deduction previously allowed).10 Either the percentage method or the actuarial method may be used to calculate the portions of monthly service fees (paid for lifetime residence in a continuing care retirement community) allocable to medical care.11 Despite this, a federal district court held that none of the entrance fee paid by married taxpayers to an assisted living facility was properly deductible as a medical expense because:
(1) no portion of the entrance fee was attributable to the couple's medical care; and (2) the entrance fee was structured as a loan, which cannot serve as the basis for a deduction (the court cited Commissioner v. Tufts in reaching this conclusion12).13
Amounts paid by an individual for medicines and drugs that can be purchased over-the-counter (without a doctor's prescription) are not deductible unless the individual has obtained a prescription.14 However, amounts paid by an individual for equipment (e.g., crutches), supplies (e.g., bandages), or diagnostic devices (e.g., blood sugar test kits) may qualify as amounts paid for medical care and may be deductible under IRC Section 213. The IRS has ruled privately that crutches used to mitigate the effect of the taxpayer's injured leg and blood sugar test kits used to monitor and assist in treating the taxpayer's diabetes were amounts paid for medical care and were deductible.15
The costs of nutritional supplements, vitamins, herbal supplements, and "natural medicines" cannot be included in medical expenses unless they are recommended by a doctor as treatment for a specific medical condition diagnosed by a doctor.16 Certain expenses for smoking cessation programs and products are deductible as a medical expense.17
Amounts paid by individuals for breast reconstruction surgery following a mastectomy for cancer and for vision correction surgery are medical care expenses and are deductible. Amounts paid by individuals to whiten teeth discolored as a result of age are not medical care expenses and are not deductible.18
Costs paid by individuals for participation in a weight-loss program as treatment for a specific disease or diseases (e.g., obesity, hypertension, or heart disease) diagnosed by a physician are deductible as medical expenses. Conversely, the costs of diet food are not deductible.19 According to IRS Publication 502, this includes fees paid by a taxpayer for membership in a weight reduction group and attendance at periodic meetings. Membership dues for a gym, health club, or spa cannot be included in medical expenses, but separate fees charged for weight loss activities can be included as medical expenses. In informational guidance, the IRS has also stated that taxpayers may deduct exercise expenses, including the cost of equipment to use in the home, if required to treat an illness (including obesity) diagnosed by a physician. For an exercise expense to be deductible, the taxpayer must establish the purpose of the expense is to treat a disease rather than to promote general health, and that the taxpayer would not have paid the expense but for this purpose.20
Expenses for childbirth classes were deductible as a medical expense to the extent that the class prepared the taxpayer for an active role in the process of childbirth.21 Egg donor fees and expenses incurred in the process of obtaining a willing egg donor count as medical care expenses that are deductible.22
However, the IRS has declined to expand the definition to include medical costs incurred by same-sex couples attempting to have a child through surrogacy. The IRS denied a request to include expenses for egg retrieval, in vitro fertilization (IVF), the surrogate's childbirth expenses, and medical insurance, legal fees and other expenses related to the surrogacy. The IRS denied the deduction for these expenses because they were not incurred to affect the body of the taxpayer, a spouse or dependent. The IRS distinguished this situation from one in which similar treatments would actually impact the taxpayer or a spouse's body.23
Finally, the cost of prescribed drugs brought in or shipped from another country is deductible only if imported legally. Additionally, the cost of prescribed drugs purchased and consumed in another country are also deductible provided the drug is legal in both the other country and the United States.24
1. Announcement 2021-7.
2. IRC § 213.
3. IRC § 213(d)(1).
4. Rev. Rul. 2007-72, 2007-50 IRB 1154.
5. IRC § 213(d)(9); see, e.g., Let. Rul. 200344010.
6. TC Summary Opinion 2001-185.
7. IRC § 213(d).
8. Rev. Rul. 66-216, 1966-2 CB 100.
9. IRS Pub. 502, Medical and Dental Expenses.
10. Rev. Rul. 76-481, 1976-2 CB 82, as clarified by Rev. Rul. 93-72, 1993-2 CB 77; Let. Rul. 8641037.
11. Baker v. Commissioner, 122 TC 143 (2004).
12. 461 U.S. 300, 307 (1983).
13. Finzer v. United States, 496 F. Supp. 2d 954 (N.D. Ill. 2007).
14. Rev. Rul. 2003-58, 2003-22 IRB 959.
15. Rev. Rul. 2003-58, above; see also IRS Information Letter INFO-2003-169 (6-13-2003).
16. IRS Pub. 502, Medical and Dental Expenses.
17. Rev. Rul. 99-28, 1999-25 IRB 6.
18. Rev. Rul. 2003-57, 2003-22 IRB 959.
19. Rev. Rul. 2002-19, 2002-16 IRB 778.
20. Information Letter INFO 2003-0202.
21. Let. Rul. 8919009.
22. Let. Rul. 200318017; see also Information Letter INFO 2005-0102 (Mar. 29, 2005).
23. Let. Rul. 202114001.
24. IRS Pub. 502.