Medical Deductions for Senior Citizens
Many senior taxpayers claim the standard deduction on their annual income tax return instead of itemizing deductions. Often seniors pay little or no mortgage interest, and they usually don't owe much for state and local income and property taxes. Most of the common itemized deductions don't add up to much for seniors. Add to that the fact that taxpayers over age 65 are entitled to larger standard deductions, and it is easy to see why many seniors don't itemize. Nevertheless, if they have significant medical expenses, they should consider itemizing.
Medical expenses are often one of the largest expenses for retired people. Fortunately, some medical expenses are deductible. These include health insurance premiums (including Medicare premiums), long-term care insurance premiums, prescription drugs, nursing home care, and most other out-of-pocket heath care expenses paid for yourself, your spouse, and your dependents.
If you itemize your deductions instead of taking the standard deduction, medical expenses are deductible on Schedule A of your tax return. However, they are deductible only to the extent they exceed 7.5% of your adjusted gross income (AGI) . For example, if your AGI was $100,000 in 2011, only your medical expenses above $7,500 (7.5% x $100,000 = $7,500) would be deductible. If you had $10,000 in medical expenses in 2011, you could deduct only $2,500.
Here is a summary of what expenses you can take for the medical expense deduction:
Premiums for Medicare Parts B, C, and D Coverage
Taxpayers enrolled in Medicare can deduct Medicare Part B coverage (for medical costs other than hospital bills), Part C coverage (for Medicare Advantage policies), and Part D coverage (for prescription drugs) as medical expenses. These Medicare premiums are generally withheld from your Social Security benefit payments. You can find the premium amounts for each year on Form SSA-1099 (Social Security Benefit Statement) which you should receive shortly after the end of each year.
If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare Part A. The payroll tax paid for Medicare Part A is not a medical expense. If you are not covered under social security (or were not a government employee who paid Medicare tax), you can enroll voluntarily in Medicare Part A. In this situation you can include the premiums you paid for Medicare Part A as a medical expense.
Premiums for Supplemental Medicare Coverage (Medigap Insurance)
Premiums paid for Medicare supplemental insurance policies are deductible as well as premiums for dental and eye insurance.
Premiums for Qualified Long-Term Care Coverage
Premiums for qualified long-term care (LTC) insurance also count as medical expenses, subject to age-based limits. For each covered person, count the lesser of: (1) the actual premiums paid in 2011 or (2) the age-based limit. For a person aged 61-70 on December 31, 2012, the maximum deductible premium amount is $3,500. For a person over 70, the maximum is $4,370.
Out-of-Pocket Medical Expenses
Co-pays and deductibles are deductible medical expenses. A complete list of deductible medical expenses is available in IRS Publication 502. For example, suppose you are injured and confined long-term to a wheelchair. To the extent insurance does not reimburse you, you may deduct what you pay for the ambulance, hospital, hospital meals, prescription drugs (but not if they are obtained from Canada or another foreign country), physical therapy, ramps and a stair lift for your house, and devices you add to your vehicle to allow you to drive.
Medical Expenses Paid for Relatives
You can deduct any payments for health insurance premiums or uninsured medical expenses for a qualifying relative. A qualifying relative is your adult child, son-in-law, daughter-in-law, grandchild, father, stepfather, father-in-law, mother, stepmother, mother-in-law, brother, stepbrother, brother-in-law, sister, stepsister, sister-in-law, aunt, uncle, niece or nephew, for whom you paid more than half of his or her support for the year. The relative doesn't have to live with you.
Next Week: Do you have enough deductions to itemize