Medical expenses can be crushing. Congress has long allowed a deduction for medical expenses under Section 213, but with a significant hurdle: only expenses in excess of a percentage of adjusted gross income are deductible. The floor has fluctuated over the years – it’s currently 7.5% of AGI – meaning that a taxpayer with $100,000 of AGI can deduct only the amount of medical expenses exceeding $7,500.
What Qualifies as “Medical Care”?
Section 213(d)(1)(A) defines “medical care” as amounts paid “for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” This broad definition includes:
- Doctors’ fees, hospital services, dental care, vision care
- Prescription drugs and insulin (over-the-counter drugs generally not deductible unless prescribed)
- Transportation primarily for and essential to medical care (mileage at 22 cents per mile for 2023, plus tolls and parking)
- Long-term care services (including premiums for qualified long-term care insurance)
Section 213(d)(1)(D) explicitly includes “qualified long-term care services” as defined in Section 7702B.
What Doesn’t Qualify?
The IRS and courts have drawn lines around what is “medical” versus merely “beneficial to general health.” Cosmetic surgery is generally not deductible unless necessary to ameliorate a deformity arising from or directly related to a congenital abnormality, personal injury, or disfiguring disease. Weight loss programs are not deductible unless specifically prescribed by a physician to treat a specific disease (e.g., obesity-related hypertension).
The most difficult cases involve expenses that are both personal and arguably medical. The classic case is Ochs v. Commissioner, 195 F.2d 692 (2d Cir.), cert. denied, 344 U.S. 827 (1952).
Ochs v. Commissioner – The Limits of Medical Necessity
Mr. Ochs’s wife had thyroid cancer. Her doctors advised that caring for their two young children (ages 6 and 4) caused her so much stress that it could cause a recurrence of the cancer. The doctors recommended sending the children to boarding school. Ochs spent $1,456.50 on day school and boarding school for the children in 1946 and claimed it as a medical expense.
The Second Circuit denied the deduction. While acknowledging the “good faith and truthfulness” of the taxpayer, the court held that the expenses were “non-deductible family expenses” rather than medical expenses. The wife had contributed the services of caring for the children; when she could no longer do so, the husband had to pay for substitute services – but that didn’t make them medical.
Judge Frank dissented, arguing for a physician-advice test: “The only sensible criterion of a ‘medical expense’ should be that the taxpayer, in incurring the expense, was guided by a physician’s bona fide advice that such a treatment was necessary to the patient’s recovery from, or prevention of, a specific ailment.” But the majority held that sending healthy children to boarding school was not a medical expense – it was childcare, however necessary.
Medical Care vs. Capital Improvements
Expenditures for home improvements may be deductible as medical expenses if they are necessary to accommodate a medical condition. Section 213(a) allows deduction for “amounts paid for medical care” including “special equipment installed in a home, or for improvements, if the primary purpose is medical care.”
In *Rev. Rul. 87-106*, 1987-2 C.B. 67, the IRS ruled that the cost of installing an elevator in a home for a person with heart disease was deductible as a medical expense. However, the deduction is limited to the excess of the cost over any increase in the home’s value. If the elevator adds $15,000 to the home’s value but costs $25,000, the deductible amount is $10,000.
Similarly, the costs of constructing a swimming pool for therapeutic purposes may be deductible if the primary purpose is medical, not recreation. The taxpayer must show that the pool is prescribed by a physician and is specifically designed for therapy (e.g., special ramps, heating for hydrotherapy). The deduction is limited to the excess over the increase in home value – and the taxpayer must substantiate both the cost and the post-improvement value.
The Interaction with Insurance Reimbursement
Only unreimbursed medical expenses are deductible. Section 213(a) provides that the deduction is for expenses “not compensated for by insurance or otherwise.”
If an employer pays for health insurance premiums, the value of that coverage is excluded from the employee’s gross income under Section 106(a). But the employee cannot deduct premiums that the employer paid. If the employee pays premiums with after-tax dollars, those premiums are deductible under Section 213(d)(1)(D) (subject to the 7.5% floor).
Reimbursements from health insurance are not included in gross income under Section 105(b) if they are for medical care expenses. But they also reduce the amount of unreimbursed expenses available for deduction.
The 7.5% Floor – Policy and Practice
The 7.5% floor serves two purposes. First, it prevents taxpayers from deducting routine, predictable medical expenses that are effectively personal living expenses (like annual check-ups). Second, it targets the deduction to taxpayers with extraordinary medical expenses – those whose medical costs truly exceed a significant portion of their income.
The Tax Cuts and Jobs Act temporarily reduced the floor from 10% to 7.5% for 2017 and 2018, and Congress later extended it. For 2023, the floor remains 7.5%. For AMT purposes, the floor is 10% – so a taxpayer who deducts medical expenses on the regular tax may have to add back the difference for AMT.
The “Upside-Down” Subsidy
Medical expense deductions are “itemized deductions” – they benefit only taxpayers who itemize rather than take the standard deduction. For tax years 2018 through 2025, the standard deduction is doubled ($13,850 for single filers in 2023, $27,700 for married filing jointly). Many taxpayers who previously itemized (including for medical expenses) now take the standard deduction and receive no benefit from medical expenses at all.
Moreover, the deduction is “upside-down”: it is worth more to high-income taxpayers (who have higher marginal rates and are more likely to itemize) than to low-income taxpayers. Yet low-income taxpayers are more likely to have medical expenses as a percentage of income. This is a persistent criticism of the deduction – one reason Congress has considered replacing it with a credit or eliminating it entirely.
Practical Planning
Taxpayers with significant medical expenses should consider “bunching” elective procedures into a single year to exceed the 7.5% floor. For example, scheduling a planned surgery and dental work in the same year as purchasing a new wheelchair or hearing aids may push total expenses above the threshold.
Paying medical expenses from a Health Savings Account (HSA) or Flexible Spending Account (FSA) provides a different benefit: contributions are pre-tax (or deductible above the line), and withdrawals for medical expenses are tax-free. For most taxpayers, using an HSA is more advantageous than taking an itemized deduction for medical expenses, because there’s no floor and the deduction is not limited to itemizers.
The medical expense deduction survives, but barely. It helps those with catastrophic medical costs, but only if they have enough income to itemize and their expenses exceed the floor. For others, it’s an illusory benefit.
Disclaimer: This article provides general information for educational purposes only and does not constitute legal advice. Tax laws, judicial interpretations, and IRS guidance are subject to change at any time through legislation, regulation, or court decision. Readers should consult Alan Goldstein & Associates for advice regarding their specific factual situations.
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