Prescriptions as Qualified Expenses
Medications that must be prescribed by a health care professional are on the IRS list of qualified medical expenses. The cost can be included along with other medical expenses and may be deductible. You can write off only the amount you actually pay. If a prescription drug plan or health insurance policy covers part of the cost, you claim just the unreimbursed portion. For example, if you are responsible for a 25 percent co-payment for a $40 prescription, only the $10 you pay is a qualified medical expense.
Related Medical Expenses
The IRS doesn't usually consider non-prescription medications tax-deductible. However, if your doctor writes you a prescription for an over-the-counter drug, you can write off the cost. Not every prescription is for a medication. For example, doctors write prescriptions for eyeglasses and contact lenses. Health care professionals can order or authorize other items as well, including hearing aids, orthotic shoe inserts and dentures. Oxygen isn't usually thought of as a drug, but it is often prescribed for people with chronic breathing problems. All of these items qualify as deductible medical expenses. As with medications, you claim just the portion of the cost that is not paid for by insurance.
Figuring Medical Deductions
Prescription costs must be added to other medical expenditures such as hospital charges, doctor's fees and medical insurance to calculate how much you can take off on your tax return. The IRS says to exclude an amount equal to 10 percent of your adjusted gross income. Only unreimbursed expenses in excess of this figure are tax-deductible. Suppose you spend $12,000 for health care and your AGI equals $75,000. Subtract $7,500 from $12,000. The remaining $4,500 can be written off. For people age 65 and over, the 10 percent exclusion was temporarily reduced to 7.5 percent through the end of 2016.
Claiming Prescriptions and Medical Expenses
When you figure your annual medical expenses, count only amounts you paid during the year irrespective of when the prescription was purchased or health care was received. You can include amounts spent for yourself, your dependents and your spouse. You have to itemize deductions to claim medical expenses, which means you can't use the 1040A or 1040EZ income tax forms. You also can't take the standard deduction, so make sure itemizing will produce a bigger tax savings for you. Use the long 1040 and report medical costs on Schedule A.