Medical Expense Deduction: The 7.5% AGI Threshold Explained

Medical Expense Deduction: The 7.5% AGI Threshold Explained

Medical expenses can add up quickly, but the IRS only allows you to deduct the portion that exceeds 7.5% of your adjusted gross income (AGI). This threshold — called the "floor" — means most people cannot use this deduction unless they have significant medical costs in a given year. Here is how to know if you qualify and what counts toward the threshold.

How the 7.5% Floor Works

You can only deduct medical expenses that exceed 7.5% of your AGI. The deduction is only available if you itemize.

Example:

• Your AGI: $60,000
• Your 7.5% floor: $4,500
• Medical expenses paid: $9,000
• Deductible amount: $9,000 − $4,500 = $4,500

If your medical expenses are only $3,000, you would not clear the floor and could not take any deduction.

What Qualifies as a Medical Expense

The IRS definition of medical expenses is broad:

Always deductible:

• Health, dental, and vision insurance premiums you pay out of pocket
• Doctor, dentist, and hospital visits
• Prescription medications
• Surgery and medical procedures
• Mental health treatment (therapy, psychiatry)
• Physical therapy and chiropractic care
• Hearing aids and batteries
• Eyeglasses and contact lenses
• Transportation to medical appointments (17 cents/mile for 2024)
• Long-term care expenses and premiums

Also deductible:

• Addiction treatment (substance abuse programs)
• Breast reconstruction surgery after mastectomy
• Fertility treatments
• Laser eye surgery
• Weight loss programs if prescribed for a specific disease
• Guide dogs or other service animals

Not deductible:

• Cosmetic surgery (unless correcting a deformity)
• Non-prescription vitamins or supplements
• Health club dues (unless prescribed for a specific disease)
• Teeth whitening
• Baby formula, diapers

Bunching Strategy to Clear the Floor

If your medical expenses consistently fall just below the 7.5% floor, consider bunching — scheduling elective procedures, dental work, glasses, and other discretionary medical spending in a single year to exceed the threshold that year, then taking fewer medical expenses the next year.

This works especially well for self-pay expenses like dental and vision care, elective procedures, and medical equipment.

Insurance Premiums: Who Can Deduct What

Employees: You can only deduct premiums you pay directly — not amounts withheld pre-tax from your paycheck (those are already excluded from income). If your employer pays part of your premium, only your out-of-pocket portion counts.

Self-employed individuals: Can deduct health insurance premiums as an above-the-line deduction (no 7.5% floor required) on Schedule 1. The Schedule A medical deduction is for remaining out-of-pocket expenses after claiming the above-the-line deduction.

What About Medicare Premiums?

Yes, Medicare premiums are deductible as medical expenses. This includes:

• Medicare Part B premiums
• Medicare Part D (prescription drug) premiums
• Medicare Advantage (Part C) premiums
• Medicare supplement (Medigap) premiums

For retired individuals with significant Medicare costs, this can be a meaningful deduction.

Long-Term Care: A Special Category

Premiums for qualified long-term care insurance are deductible up to age-based limits (ranging from $480 to $5,960 depending on age). Long-term care facility costs — nursing home, assisted living — are fully deductible as medical expenses if the primary reason for being in the facility is medical care.

Keep All Receipts

Because the deduction requires itemizing and is subject to audit scrutiny, thorough documentation is essential. Keep:

• Explanation of Benefits (EOB) statements from insurance
• Pharmacy receipts
• Doctor billing statements
• Mileage logs for medical transportation
• Canceled checks or credit card statements