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Publication 17
Your Federal Income Tax

For Individuals

For use in preparing 2002 Returns

Transportation

You can include in medical expenses amounts paid for transportation primarily for, and essential to, medical care.

You can include:  

  • Bus, taxi, train, or plane fares, or ambulance service,
  • Transportation expenses of a parent who must go with a child who needs medical care,
  • Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and
  • Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment.

You cannot include:  

  • Transportation expenses to and from work even if your condition requires an unusual means of transportation, or
  • Transportation expenses if, for nonmedical reasons only, you choose to travel to another city, such as a resort area, for an operation or other medical care prescribed by your doctor.

Car expenses.   You can include out-of-pocket expenses for your car, such as gas and oil, when you use your car for medical reasons. You cannot include depreciation, insurance, general repair, or maintenance expenses.

If you do not want to use your actual expenses, you can use a standard rate of 13 cents a mile for use of your car for medical reasons.

You can also include the cost of parking fees and tolls. You can add these fees and tolls to your medical expenses whether you use actual expenses or use the standard mileage rate.

Example.   Bill Jones drove 2,800 miles for medical reasons during the year. He spent $200 for gas, $5 for oil, and $50 for tolls and parking. He wants to figure the amount he can include in medical expenses both ways to see which gives him the greater deduction.

He figures the actual expenses first. He adds the $200 for gas, the $5 for oil, and the $50 for tolls and parking for a total of $255.

He then figures the standard mileage amount. He multiplies the 2,800 miles by 13 cents a mile for a total of $364. He then adds the $50 tolls and parking for a total of $414.

Bill includes the $414 of car expenses with his other medical expenses for the year because the $414 is more than the $255 he figured using actual expenses.

Disabled Dependent
Care Expenses

Some disabled dependent care expenses may qualify as medical expenses or as work-related expenses for purposes of taking a credit for dependent care. (See chapter 33.) You can choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction.

Impairment-Related
Work Expenses
(Business or Medical)

If you are disabled and have expenses which are necessary for you to be able to work (impairment-related work expenses), you can take a business deduction for these expenses, rather than a medical deduction. You are disabled if you have:

  • A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or
  • A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working.

You can deduct impairment-related expenses as business expenses if they are:

  • Necessary for you to do your work satisfactorily,
  • For goods or services not required or used, other than incidentally, in your personal activities, and
  • Not specifically covered under other income tax laws.

Example.   You are blind. You must use a reader to do your work. You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. The reader's services are only for your work. You can deduct your expenses for the reader as business expenses.

How Do You Treat Reimbursements?

You can deduct as medical expenses only those amounts paid during the taxable year for which you received no insurance or other reimbursement.

Insurance Reimbursement

You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. This includes payments from Medicare.

Generally, you do not reduce medical expenses by payments you receive for:

  • Permanent loss or use of a member or function of the body (loss of limb, sight, hearing, etc.) or disfigurement that is based on the nature of the injury without regard to the amount of time lost from work,
  • Loss of earnings, or
  • Damages for personal injury or sickness.

You do not have a medical deduction if you are reimbursed for all of your medical expenses for the year.

Excess reimbursement.   If you are reimbursed more than your medical expenses, you may have to include the excess in income. You may want to use Figure 23-A to help you decide if any of your reimbursement will be taxable income.

Premiums paid by you.   If you pay the entire premium for your medical insurance or all of the costs of a plan similar to medical insurance, you generally do not include an excess reimbursement in your gross income.

Premiums paid by you and your employer.   If both you and your employer contribute to your medical insurance plan and your employer's contributions are not included in your gross income, you must include in your gross income the part of an excess reimbursement that is from your employer's contribution.

You can figure the percentage of the excess reimbursement you must include in gross income using the following formula.

  Amount paid by employer Total annual cost of policy = Percent of excess reimbursement that is taxable  

Example.   You are covered by your employer's medical insurance policy. The annual premium is $2,000. Your employer pays $600 of that amount and the balance of $1,400 is taken out of your wages. The part of any excess reimbursement you receive under the policy that is from your employer's contributions is figured as follows:

 $600  $2,000 = 30%

You must include in your gross income 30% (.30) of any excess reimbursement you received for medical expenses under the policy.

Premiums paid by your employer.   If your employer or your former employer pays the total cost of your medical insurance plan and your employer's contributions are not included in your income, you must report all of your excess reimbursement as other income.

More than one policy.   If you are covered under more than one policy, the costs of which are paid by both you and your employer, you must first divide the medical expense among the policies to figure the excess reimbursement from each policy. Then divide the policy costs to figure the part of any excess reimbursement that is from your employer's contribution.

Example.   You are covered by your employer's health insurance policy. The annual premium is $1,200. Your employer pays $300, and the balance of $900 is deducted from your wages. You also paid the entire premium ($250) for a personal health insurance policy.

During the year, you paid medical expenses of $3,600. In the same year, you were reimbursed $2,400 under your employer's policy and $1,600 under your personal policy.

You figure the part of any excess reimbursement you receive that is from your employer's contribution as follows:

Step 1.
Reimbursement from employer's policy $2,400
Reimbursement from your policy 1,600
Total reimbursement $4,000
Amount of medical expenses from your policy [($1,600 ÷ $4,000) × $3,600 total medical expenses] $1,440
Amount of medical expenses from your employer's policy [($2,400 ÷ $4,000) × $3,600 total medical expenses] 2,160
Total medical expenses $3,600
Excess reimbursement from your employer's policy ($2,400 - $2,160) $240
Step 2.
Because both you and your employer contributed to the cost of this policy, you must divide the cost to determine the excess reimbursement from your employer's contribution.
Employer's contribution in relation to the annual cost of the policy ($300 ÷ $1,200) 25%
Amount to report as other income on line 21, Form 1040 (25% × $240) $60

Reimbursement in a later year.   If you are reimbursed in a later year for medical expenses you deducted in an earlier year, you must report the reimbursement as income up to the amount you previously deducted as medical expenses. However, do not report as income the reimbursement you received up to the amount of your medical deductions that did not reduce your tax for the earlier year. For more information about the recovery of an amount that you claimed as an itemized deduction in an earlier year, see Itemized Deduction Recoveries in chapter 13.

Figure 23-A. Excess Medical Reimbursement Algorithm

Figure 23-A. Excess Medical Reimbursement Algorithm

Medical expenses not deducted.   If you did not deduct a medical expense in the year you paid it because your medical expenses were not more than 7.5% of your adjusted gross income, or because you did not itemize deductions, do not include in income the reimbursement for this expense that you receive in a later year. However, if the reimbursement is more than the expense, see Excess reimbursement, earlier.

Example.   Last year, you had medical expenses of $500. You cannot deduct the $500 because it is less than 7.5% of your adjusted gross income. If, in a later year, you are reimbursed for any of the $500 in medical expenses, you do not include that amount in your gross income.

Settlement of damage suit.   If you receive an amount in settlement of a personal injury suit, the part that is for medical expenses deducted in an earlier year is included in income in the later year if your medical deduction in the earlier year reduced your income tax in that year. See Reimbursement in a later year, earlier.

Future medical expenses.   If you receive an amount in settlement of a damage suit for personal injuries that is properly allocable or determined to be for future medical expenses, you must reduce any medical expenses for these injuries until the amount you received has been completely used.

How Do You Report the Deduction on Your Tax Return?

Once you have determined which medical care expenses you can include when figuring your deduction, you must report the deduction on your tax return.

What Tax Form Do You Use?

You figure your medical expense deduction on lines 1-4 of Schedule A, Form 1040. You cannot claim medical expenses on Form 1040A or Form 1040EZ. If you need more information on itemized deductions or you are not sure if you can itemize, see chapters 21 and 22.

Enter the amount you paid for medical and dental care on line 1, Schedule A (Form 1040). This should be your expenses that were not reimbursed by insurance or any other sources.

You can deduct only the amount of your medical and dental expenses that is more than 7.5% of your adjusted gross income shown on line 35, Form 1040. For an example, see the partial Schedule A at the end of this chapter.

Bill and Helen's Schedule A

Bill and Helen's Schedule A

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