Tax season may have come and gone, but if you’re like most of us, then many important receipts get lost before tax season ever starts.
If you have many medical bills and health-related expenses piling up then you may have an extra incentive to hang on to those receipts: Next year you may qualify for a significant tax deduction.
According to USA Today, depending on your employment status and several other factors, you may be eligible to deduct a significant portion of your medical expenses.
Keep Track of Your Records
Keeping up with receipts may feel like nothing more than a hassle, but depending on your situation this simple task could save you hundreds or thousands of dollars. And while the payoff may seem a long ways off, you’ll certainly be glad when a refund check arrives next April.
Also, if you don’t think your medical expenses are enough to keep track of, think again. Even if you have insurance and are in good health, things can change quickly and without warning. One report in the American Journal of Medicine says that medical bills are the founding cause of 60 percent of all bankruptcy filings, and many of those people had health insurance.
The expenses that are deductible and the amount that you can deduct depend mainly on which of the following three categories you fall into: Employed, Unemployed or Self-Employed.
Medical Expenses for the Employed
If you are employed: Then you qualify for the smallest tax break, but one that can still be important if you have high medical bills.
Medical expenses that are out-of-pocket and exceed 7.5 percent of your adjusted gross income are deductible. According to USA Today, this may include:
- Deductibles and co-payments
- Prescription drugs not covered by insurance
- Travel costs
You may not be able to deduct non-prescription drugs and cosmetic procedures.
Medical Expenses for the Unemployed
If you are unemployed: The tax break you are eligible for depends on the circumstances of your unemployment.
More from GFC, Below
If you are unemployed due to outsourcing, you may qualify for a large tax credit. The Health Coverage Tax Credit may pay for 80 percent of your health insurance premiums if you qualify.
To qualify for this tax credit you must be 55 years of age or older and either be receiving Trade Adjustment Assistance (TAA) benefits or be receiving pension payments from the Pension Benefit Guaranty Corporation (PBGC).
To see if you qualify for either program visit the main sites http://www.irs.gov/individuals/article/0,,id=185763,00.html for TAA info and http://www.irs.gov/individuals/article/0,,id=185767,00.html for PBGC info.
If you are unemployed, but not because of outsourcing, you still qualify for tax deductions of medical expenses that exceed 7.5 percent of your adjusted gross income.
This is tough threshold to meet if you’re working full time. But if you’re unemployed – or working reduced hours – and have lost your health insurance then you may see your income drop while medical expenses increase. Even without a medical emergency there’s a chance you’ll meet this threshold and could be in for some big savings next year.
Medical Expenses for the Self-Employed
If you are self-employed: You are probably able to deduct 100 percent of your health care premiums. Also, as in the other categories, you can still deduct all medical expenses that exceed 7.5 percent of your adjusted gross income.
Because self employed workers often face much higher premiums than other workers receiving health insurance through employers they receive a generous deduction, reports USA Today.
There are, however, a few exceptions to this deduction. If you are covered by your spouse’s health insurance plan through his or her employer you may not deduct expenses that exceed the net income of your business.
What if you haven’t been saving receipts?
If you have been tossing your receipts or don’t have a good system for storing them it’s not too late to begin. You may even be able to contact doctor or hospital offices and ask them to reprint a receipt for your records.
What if your job status changes?
A change in your job status shouldn’t change your approach.
If you were unemployed for part of the year, but then are re-hired you should keep you receipts and keep collecting. Even if you are employed you are still eligible for the discount, and, because you were out of work part of the year, you may have an easier time reaching the threshold for deduction.
Also, at many businesses new hires aren’t eligible for insurance until after a certain time period. This may last several months, during which you may still be paying more for your health care.
If you were not keeping your receipts and then lose your job this change may mark a good time to start keeping track of your medical expenses.
If you’re starting from scratch be sure to start on the right foot. Get a simple file or organizational system in place to keep and store your receipts so you may access them next spring during tax time.
Ted Higgins is a blogger on debt, bankruptcy and job loss for Total Bankruptcy. He is based in Chicago and prefers the Cubs. Keep up with the blog and financial info at www.totalbankruptcy.com/blog. Ted is not endorsed or affiliate with LPL Financial.
This information is not intended to be a substitute for specific individualized tax, legal, or investment planninc advice. We suggest that you speak with a qualified tax advisor for specific tax advice.