The healthcare industry has been changing rapidly since the passage of the Affordable Care Act in 2010. The AFA provides for certain healthcare protections and reforms, but also outlines a series of changes to take place over several years' time.
While healthcare professionals have mobilized to understand and apply AFA's provisions to patient care, individuals and tax professionals have similarly grappled with how to handle everything from premium payments to tax credits at tax time.
One persistent question relates to whether the AFA permits deduction of holistic health care expenses when filing annual tax returns. This post will cover this topic in more detail.
I.R.S. Publication 502
I.R.S. Publication 502 is an official federal publication that addresses how to handle medical and dental expenses when preparing individual federal tax returns.
Each year, the I.R.S. updates Publication 502 to help taxpayers properly submit mainstream and holistic health care claims on their annual tax returns. This publication is a vital reference to ensure the most rapid and accurate filing of annual tax returns.
Holistic Care Expenses Eligible for Tax Deduction
The I.R.S. does permit deductions for certain approved holistic care expenses.
Currently, the following holistic health care deductions are allowable:
- Acupuncture treatments.
- Pyschologist treatments.
- Doctors of Osteopathic Medicine.
- Practitioners of Christian Science.
- Programs to stop smoking.
- Programs to lose weight (IF prescribed by a physician as treatment for a specific covered disease or health issue).
- Full-body CT (computerized tomography) body scan.
Currently, these are the sole eligible holistic care expenses specifically referenced by the I.R.S. in Publication 502.
Deducting Other Holistic Health Expenses
While the I.R.S. hasn't made a specific ruling on certain alternative or holistic health care deductions, this doesn't necessarily mean they will not be permitted under a detailed individual review.
For example, as U.S. News & World Report highlights, it may be deemed an acceptable health-related claim.
There are two keys to positioning such a claim for acceptance:
- Obtaining a medical prescription from a doctor for a holistic health service that is deemed medically necessary for the treatment of a named health care condition.
- The holistic health service is routinely prescribed for the same or similar health conditions and has some recognition as such in the medical field.
Two examples of such "grey area" holistic health services that may or may not be deemed extensible at tax time are Reiki and chiropractic. Both require extensive training and both issue certifications and/or licenses to practitioners. Both are becoming more known and mainstream for the management of certain health conditions.
However, since neither is formally named in the most current edition of the I.R.S.'s Publication 502, making the decision about whether to claim these expenses and possibly submit to further review by the I.R.S. is a individual call. It can be very helpful to take the advice of an experienced tax preparer when tackling these types of decisions.
Non-Eligible Holistic Health Care Expenses
Just as the I.R.S. Publication 502 specifically references certain permissible holistic health care deductions by name, so too does it specifically reference certain non-eligible and thus disallowed health services.
The most current form of Publication 502 specifically disallows submitting a claim for these services:
- Cosmetic surgery.
- Over the counter (non-prescription) medications - insulin is the one named exception.
- Controlled substances (including cannabis, even if it is legal in the state of the taxpayer's residence).
- Childcare for a healthy child.
- Maternity wear.
- Athletic (swimming, dancing, et al) lessons.
- Gym membership dues.
- Veterinary services.
How to Deduct Permissible Holistic Health Expenses at Tax Time
The I.R.S. has outlined certain steps a taxpayer must take in order to be able to legally deduct permissible holistic health expenses on the annual tax return.
It is important to understand the criteria and the process for deducting these health services.
The first thing to know is that a taxpayer may only deduct medical and health care expenses that exceed the equivalent of 10 percent of adjusted gross income, or AGI. According to Investopedia, calculating AGI can be done by using this formula:
- First, add up all taxable income.
- Next, deduct permitted deductions from taxable income.
- The difference is the taxpayer's AGI.
Now, take the AGI and multiply it by .10, or 10 percent. This is the amount taxpayers age 64 or younger may NOT deduct or claim on the annual tax return. (For taxpayers age 65 and older, take the AGI and multiply it by .075, or 7.5 percent.)
Any expenses that exceed 10 percent of the annual AGI may be deducted via itemization. There are three things to remember here:
- Itemization replaces taking the standard deduction - only one option can be chosen.
- Itemization requires use of I.R.S. Schedule A.
- Use of Schedule A requires detailed receipts and documentation.
How to Know Itemizing Holistic Health Deductions Is Worth It
There is only one way to know for sure whether to simply take the standard deduction or to itemize medical and health expenses, and that is to calculate the results of each.
Of course, the standard deduction will not permit deduction of holistic-based health expenses. However, for taxpayers whose overall health expenses do not exceed 10 percent of AGI, this is the best choice. For taxpayers whose expenses exceed 10 percent of AGI, itemizing may be a more favorable choice, so long as there is a reasonable certainty of coverage for the particular holistic expenses involved.
The I.R.S. Regulations Can Change Annually
The official I.R.S. rules and regulations for tax filing can and sometimes do change from year to year.
To ensure the most up-to-date federal tax return information, it is a wise idea to check the IRS website and/or consult with a professional tax preparer to learn about recent tax changes that concern itemizing and deducting holistic health expenses.