Health Care Tax Deduction

As medical costs go up and household income lags behind, more people are likely to qualify for health care tax deductions.

A recent Census report shows a decline in median household income; real median household income was $49,445 in 2010, 7.1% below its 1999 peak of $53,252.)

Indeed, in 2009 (the latest year for which data is available), health care tax deductions were the only itemized deduction that grew, rising nearly 5% from the previous year to a total of $79.9 billion, according to Internal Revenue Service data. The amount has probably gone up since then.

To qualify for a health care tax deduction, you need to spend more than 7.5% of your adjusted gross income on health costs, as only the expenses above that threshold can be deducted. The U.S. Census has reported that real median household income in 2010 was still below its 1999 peak, so the combination of rising costs and lower incomes could produce more qualifying deductions.

If your out-of-pocket medical costs rose last year, or your income fell, it's certainly worth sorting through all your receipts to see if you qualify, even if you never did before.

You might discover that you've been pushed over the limit by a new baby, or simply because you're facing higher deductibles and co-payments in your insurance plan.

"People are cavalier about thinking about medical expenses, because not many people spend over 7.5% of income... (on health care), but with incomes reduced, more and more people may qualify," says Bob Meighan, a TurboTax vice president and certified public accountant. "It is time to reevaluate."

Some 10 million taxpayers claim this deduction, for an average of $7,915 each. If you make $100,000 and spend $10,000 on medical care, you'd get a deduction of $2,500, worth $700 in the 28-percent tax bracket.