Tax Deductions for Cancer Patients

What Medical Expenses are Tax Deductible?

chalkboard with tax deductions written on it
What medical expenses are tax deductible for cancer patients?. Flickr.com/creative commons/Chris Potter

Cancer and Tax Deductions for Medical Expenses

"The hardest thing in the world to understand is the income tax."  - Albert Einstein

Cancer is an expensive disease, but for some people, keeping careful records of out-of-pocket medical expenses can result in considerable savings come tax time.

That said, with the newer tax laws, medical deductions must exceed 10 percent of your adjusted gross income (or 75 percent if you or your spouse is aged 65 or more until 12/31/16.) Even yet, many people are surprised that - when after adding up expenses - they still receive a tax break (see an example that may raise your eyebrows near the end of this article.)

What expenses are deductible, and what are not? What kind of records should you be keeping? Is it time to hire an accountant? What about insurance premiums?

What Is a Deductible Medical Expense?

Medical expenses that may be deducted include payments for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.”

What Medical Expenses Are Deductible?

Medical expenses that are not paid for by your medical insurance or health savings plan may be deductible. Keep in mind that these costs need to be paid by cash, credit card, or check, during the year for which you are filing taxes. Expenses which may be deductible include:

Insurance Premiums

  • Premiums paid to private health insurance plans.  
  • You may not deduct employer paid premiums or employer reimbursed premiums. Also, you may not deduct insurance premiums that cover loss of limbs or loss of compensation.
  • Medicare Part B (supplemental health insurance) and Medicare Part D (voluntary prescription drug insurance) are deductible, but not Medicare Part A (hospital insurance.)
  • Some long-term health insurance premiums are deductible.
  • If you are self-employed you may instead be eligible for the self-employed health insurance deduction as a business expense. Instead of an itemized deduction for premiums paid, this is instead an adjustment to income. See Publication 535. If you do not claim all of your self-employed health insurance business deduction, you can include the remaining cost as a medical expense on your personal itemized deductions.

    Payments to Health Care Providers, Including Specialists

    Payments to physicians and other medical practitioners that are not covered or reimbursed by insurance are deductible. Co-pays that you pay out-of-pocket are also deductible.

    Inpatient Medical Care

    Inpatient medical care in a hospital, rehabilitation center, or nursing home is deductible as long as it is not paid for by your insurance, or a health savings account (HSA) or flexible savings account (FSA).  Meals and lodging for inpatient (but not outpatient) care is deductible.

    Cancer Treatments

     The portion of  cancer treatments - such as surgery, radiation therapy, chemotherapy, targeted therapies, and immunotherapy - not covered by insurance, can be claimed as medical deductions.

    Prescription Medications

    The portion of prescription medications not covered by insurance. and co-pays on covered drugs are deductible.

    Wigs

    Wigs are deductible if they are purchased for chemotherapy-induced hair loss.

    Reconstructive Surgery

    Deductible expenses include reconstructive surgery for conditions related to a disease, accident, or disfiguring disease, for example, breast reconstruction following a mastectomy.

    Surgery related to congenital abnormalities are also deductible. Surgeries for cosmetic reasons, such as liposuction, are not deductible.

    Mental Health Treatments

    Visits with mental health practitioners such as psychiatrists and psychologists are deductible expenses.

    Therapies

    Therapies such as physical therapy or occupational therapy, if they are not covered by insurance, are deductible

    Vision and Hearing 

    In addition to appointments with an ophthalmologist or optometrist (the portion that is not covered by insurance), deductible expenses include eyeglasses, contact lenses, and solution for cleaning contact lenses. Corrective eye surgery (LASIK) is a deductible expense, as are hearing aids.

    Dental - Preventive dental care such as dental cleaning, the application of dental sealants, and fluoride treatments are covered. Treatments for dental disease such as dental fillings are covered, as are procedures such as extractions, x-rays, and orthodontic treatments such as braces, False teeth (dentures) are deductible, but cosmetic services such as teeth whitening are not deductible.

    Alternative Therapies

    Payments to alternative medical practitioners, when used as an adjunct to traditional cancer treatment, are covered. Examples include:

    Some Nutritional Supplements

    In general, nutritional supplements are not tax deductible, even if recommended by your medical provider. A supplement may be deductible if it is recommended by a medical practitioner for a specific medical condition. For example, a vitamin D supplement that is recommended by a physician due to vitamin D deficiency in a cancer patient may be deductible. Another example would be the use of a weight-promoting supplement designed to treat cancer cachexia (a serious condition felt to be responsible for 20 percent of cancer deaths in the United States.)

    Travel for Medical Reasons

    As long as the primary reason for travel is medical care - not for pleasure, and not for relaxation or general health, even if recommended by a medical practitioner - travel may be deductible.  Expenses that may be deducted include:

    • Transportation to and from medical care, including travel to hospitals and clinics, pharmacies, and therapy appointments. The standard mileage rate for operating a car for 2014 tax returns is 24.5 cents per mile. Also deductible are parking fees, and tolls (but not  maintenance, auto repairs, car insurance, or depreciation.) Taxi fares, bus fares, train,fares, and airfare are deductible expenses.
    • Special equipment installed in a car by special design to accommodate someone with a disability, such as hand controls. You can also include the expenses to have a car specially designed to hold a wheelchair.
    • Lodging for yourself and a caregiver. The maximum that may be deducted per day is $50 per person.
    • Meals may not be deducted except for those during an inpatient hospital stay.

    Travel to Medically-Related Conferences

    Attendance fees and travel to seminars and conferences related to your own chronic conditions or those of your spouse or dependents are deductible expenses when the costs are "primarily for and essential to necessitated medical care."  You cannot deduct meals or lodging. An example would be attending a conference on living daily with the side effects of cancer treatment.

    Supplementary Treatments/Programs/Counseling

    • Smoking cessation programs are covered (but not nicotine replacement such as nicotine patches or nicotine gum.) Prescription drugs aimed at easing nicotine withdrawal symptoms (such as Chantix) are covered. 
    • Weight loss programs if prescribed for a specific condition, such as obesity. The food recommended by these programs is not deductible.
    • Inpatient treatments for alcohol and drug addiction.

    Costs Related to Service Animals

    Ordinarily, veterinary expenses are not deductible. An exception is for the ongoing costs for service animals, such as seeing-eye dogs (guide dogs for the blind) and epilepsy dogs.

    Personal Assistance Devices

    Durable medical equipment such as walkers, chairs with an assisted lift functions, grab bars,  oxygen  and oxygen equipment, CPAP, wheelchairs, crutches, and artificial limbs are deductible.  

    Remedial Learning for Children with Disabilities

    For example, remedial reading for a dyslexic child.

    In-home Nursing Care

    In-home nursing care is a deductible expense, but only that portion related to medical care alone (for example, time spent house-cleaning by a home health aid is not deductible.)

    Home Improvements to Accommodate Your Health Condition (Capital Expenses)

    Home improvements and special equipment may be deducted as medical expenses if the purpose is for medical reasons for you, your spouse, or your dependents. This deduction is reduced by any increase in value that the improvement contributes to your property. Examples include:

    • Construction of entrance ramp(s) for your home.
    • Widening exterior and interior doorways and hallways.
    • Installing handrails and support/grab bars, and modifying hardware on doors.
    • Raising or lowering cabinets or counters for accessibility. 
    • Lifts such as those to navigate stairs.
    • Grading the ground of the exterior of the home for accessibility. 
    • Modifying warning systems such as fire alarms and smoke alarms.
    • Modifying electrical fixtures and outlets.
    • Removal of lead-based paint that is in poor repair or within a child's reach.
    • A pool or spa if it is designed to provide medical treatment (minus any value it adds to your home.)

    What Is NOT Deductible?

    • Insurance that is paid by your employer. You may not deduct your contributions to your employer-sponsored health insurance unless these premiums are included in box 1 on your W2 form.
    • You may not deduct expenses covered by your health savings account or flexible spending account (since these are withdrawn on a pretax basis.)
    • Over-the-counter medications (medications you can purchase without a prescription) even if it is recommended by a medical provider (for example, aspirin for people with heart disease.)
    • Travel that is for general health improvement, even if recommended by a medical practitioner.
    • Funeral or burial expenses.
    • Toiletries such as toothpaste or cosmetics.
    • Programs for the general improvement of your health.
    • Most cosmetic surgery, when the purpose of the procedure is to improve appearance and "does not meaningfully promote the proper function of the body or prevent or treat illness." For example, liposuction, face lifts, teeth whitening, hair transplants, and hair removal (electrolysis) would not be deductible. If surgery is needed as a result of an accident or disease (for example, breast reconstruction) or due to a congenital deformity, the cost would then be tax deductible.
    • Nicotine replacement therapy, such as nicotine patches and nicotine gum.
    • Nutritional supplements unless specifically ordered by your doctor for a specific medical condition.
    • Diet foods.
    • Health club memberships.

    Forms You Need to File/Assistance

    In order to claim medical deductions, you will need to file Schedule A (form 1040), not 1040​EZ or 1040 alone.

    You may download forms and publications or order current or prior-year forms and instructions by calling 1-800-TAX-FORM (1-800-829-3676). For questions, check out the information available at IRS.gov or call 1-800-829-1040.

    Do You Need an Accountant?

    Not everyone will need the services of an accountant to claim medical deductions, but keep this in mind: it may be penny-wise and dollar-foolish not to do so.

    General Tips on Managing Your Medical Tax Deductions

    • Begin keeping a folder and notebook the day you are diagnosed, or as soon as possible.
    • Save all receipts.
    • Ideally, write down all purchases and bills paid at the time you make the payment.

    Finally, check out the example of how a typical (though hypothetical family) was able to reduce their taxes by itemizing medical deductions. Keep in mind that it is the combination of not only your medical expenses with cancer, but the medical expenses incurred by your spouse and any dependent children.  

    An Example of How Deductions May Help a Family With Cancer

    The 10 percent cut-off may seem high, but a quick hypothetical (though somewhat extreme) example may help clarify this. Consider a family of 5 with one parent with lung cancer, 3 dependent children, a combined adjusted gross income of $55,000 per year, and a private health insurance policy (dad is a freelancer and does not have employer-sponsored health insurance) with a $5,000 deductible.  

    • Non-reimbursed health insurance premiums of $761.00 monthly for a total of $9132.00.
    • Mom's out-of-pocket expenses for lung cancer include $3500.00 of non-covered, non-reimbursed clinical visits, hospital charges, and oxygen supplies. Travel to medical appointments 90 miles from home for chemotherapy, radiation therapy, surgery, and clinic visits comes to 2750 miles (reimbursed at 24.5 cents per mile for a total of $673.75.) Mom attended a smoking cessation program (non-reimbursed for a cost of $200.)
    • Dad is diabetic.  Out-of-pocket expenses included travel (not added up here) and the admission cost for a conference recommended by his doctor to help manage his diabetes. The cost of the conference was $550 for a couple, with a travel cost of $220 based on the car deduction. Dad also had corrective eye surgery which came to $3500.  
    • One child suffers from a learning disorder (dyslexia) requiring remedial reading for a cost of $1200.
    • Two of the children are currently in braces. After the $1,000 per child covered by dental insurance, they paid by check during the year a total of $7000 for braces.
    • Non-covered dental cleaning and dental procedures came to $1030 for the 5.
    • One child has contact lenses which came to $360 for the year. Contact solution was an additional $60.

    In this case, the total out-of-pocket family medical expenses which were not covered by insurance or a health savings plan came to $27,425.75. Based on an annual family income of $55,000 and using the 10 percent cut-off, expenses over-and-above $5,500 would be deductible. Subtracting the 10 percent cut-off, the remaining $21,925.75 qualifies as a medical deduction. While this example may seem extreme, keep in mind that 1 in 10 cancer patients spend over $18,000 in out-of-pocket medical costs each year and that it's estimated that medical costs are a factor in 60 percent of personal bankruptcies in the United States.

    Bottom Line

    A good point to keep in mind is that itemizing medical expenses is not a way to "get-out-of" paying taxes, but rather having the opportunity to avoid paying taxes on medically related expenses that you would otherwise not incur if you were 100 percent healthy. After all, you have to suffer the physical and emotional roller-coaster of the devastating disease of cancer.  And even with deductions, the combination of increased expenses and decreased ability to work with cancer can be catastrophic financially.

    Next Steps

    After considering the restrictions on medical deductions, you may wonder how you can lessen your expenses in the future. Consider the following ideas:

    • Going forward, consider bunching medical procedures within a calendar year (within reason of course.) For example, if you have a hospitalization for cancer, you may consider scheduling that hip replacement you have been waiting for, along with your overdue colonoscopy during the same year in order to reach the 10 percent cut-off.
    • Look into other tax planning options, such as flexible spending accounts (FSA's)

    Sources:

    American Cancer Society. Understanding Health Insurance. Accessed 06/28/16. http://www.cancer.org/treatment/findingandpayingfortreatment/understandinghealthinsurance/index

    Department of the Treasury Internal Revenue Service. Publication 502 Medical and Dental Expenses for use in Preparing 2014 returns. Accessed 04/11/15. https://www.irs.gov/pub/irs-pdf/p502.pdf

    Internal Revenue Service. Topic 502 – Medical and Dental Expenses. Updated 03/05/15. https://www.irs.gov/taxtopics/tc502.html

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