Financial Calculators and Articles - Medical and Dental Expenses and Taxes
As of 2-22-25
Medical and dental expenses can have significant implications for your taxes, especially in the context of healthca rerelated accounts like Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs). Here’s a comprehensive overview of how medical and dental expenses interact with taxes:
1. Deductible Medical and Dental Expenses
Qualified Medical Expenses: The IRS allows taxpayers to deduct certain medical and dental expenses if they exceed a specific percentage of their adjusted gross income (AGI). As of the tax year 2023, you can deduct medical and dental expenses that exceed 7.5% of your AGI.
- Eligible Expenses: Medical and dental expenses include, but are not limited to:
- Payments for medical services (doctor visits, hospital care)
- Dental care (cleanings, fillings, orthodontics)
- Prescription medications and insulin
- Certain types of health insurance premiums
- Long term care insurance premiums
- Certain medical transportation costs
2. Health Savings Accounts (HSAs)
- Tax Advantages: Contributions to HSAs are tax deductible. Withdrawals for qualified medical expenses are tax free.
- Eligibility: To contribute to an HSA, you must be enrolled in a high deductible health plan (HDHP).
- Carryover: Unlike FSAs, funds in HSAs roll over from year to year, allowing you to build savings for future medical expenses.
3. Flexible Spending Accounts (FSAs)
- PreTax Contributions: Contributions to an FSA are made with pretax dollars, reducing your taxable income.
- Use It or Lose It Rule: Funds in an FSA typically must be used by the end of the plan year, although some employers may offer a grace period or allow a carryover of a certain amount to the next year.
- Qualified Expenses: FSAs can be used to reimburse a wide range of medical and dental expenses, similar to those eligible for HSA reimbursement.
4. Health Reimbursement Arrangements (HRAs)
- Employer Funded: HRAs are funded solely by employers; employees cannot contribute.
- Reimbursement: Employees can submit eligible medical and dental expenses for reimbursement using HRA funds.
- Tax Free Reimbursements: Reimbursements from an HRA for qualified medical expenses are tax free to the employee.
5. Tax Filing and Documentation
- Record Keeping: It’s essential to keep meticulous records and receipts of all medical and dental expenses paid throughout the year, especially if you plan to claim deductions or use funds from HSAs, FSAs, or HRAs.
- Form 1040: To deduct qualified medical expenses, you will itemize your deductions on Schedule A (Form 1040).
6. IRS Guidance and Updates
- Regulatory Changes: The IRS periodically updates its guidelines regarding medical and dental expenses, FSA, HRA, and HSA regulations. It's vital to stay informed about any changes that could impact eligibility or tax treatment.
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