Tax deductions for allergy-related medical costs
Tuesday, August 23, 2016
I have allergies, but they are just the run-of-the-mill inconveniences -- sniffles, sneezing, red eyes. Neither my life nor those of my loved ones depend on immediate treatment for an allergic reaction.
Folks who rely on EpiPens, however, are in a really terrible place right now.
EpiPen price increases: These injectable devices deliver a pre-measured dose of epinephrine (adrenaline) to people who are having a potentially deadly allergic reaction. The shot reverses anaphylaxis, which is the swelling, closing of the airways and other symptoms suffered by many who are allergic to bee stings, peanuts or other allergens.
Mylan, the pharmaceutical company that makes EpiPens, has been raising the product's price since it acquired it in 2007. That year, reports The New York Times (using data provided by Elsevier Clinical Solutions' Gold Standard Drug Database), pharmacies paid less than $100 for a two-pen set.
In 2009, that edged up to $103.50 for a set. It hit $264.50 in 2013 and then $461 the next year. This May, an EpiPen pair price jumped to $608.61.
Congress is asking questions and the Federal Trade Commission is being urged to investigate the price hikes.
Tax help for allergy treatments: Meanwhile, people who need the treatments are trying to figure out how to pay for the more expensive EpiPens.
Even if you have insurance that covers the allergy treatment, you could end up paying a substantial co-pay or having to cover the full cost depending on your policy and its deductible, especially after this latest price hike.
If that out-of-pocket cost, along with other expenses not covered by your medical policy are substantial, you might be able to get some tax help.
Money from a medical flexible spending account (FSA) can be used in these instances. Here, you put pre-tax money into a workplace account and then use the money to pay for uncovered medical costs or expenses you have to meet outside your insurance. Check out the FSA option when your company's benefits enrollment season opens, usually in the fall for the coming year.
If you itemize expenses, your new EpiPen costs also might help you meet the 10 percent of adjusted gross income hurdle to deduct these costs. Also check out these other out-of-the-ordinary health-related expenses that could be used to help you meet this Schedule A requirement.
Deducting special food: For folks who have life-threatening allergies that require special foods, some of those special grocery items also might be deductible as a medical expense.
But there are additional, and even steeper, thresholds to meet before the Internal Revenue Service will allow you to write off these food-allergy edibles as a tax deduction.
Specifically, there are three food deduction considerations:
1. The food must be necessary to treat a medical condition. You just can't claim a food that you like better or even makes you feel better. Sure, you're much more comfortable with that lactose-free milk, but that's not a tax-approved change to your grocery list. Ditto with going vegan. Before it can be deducted, the food must be medically necessary.
2. That medical condition must be diagnosed by and the special food prescribed by a doctor. For the IRS to accept that your special food is medically necessary, then you need -- you guessed it -- to get your doctor involved in your grocery shopping, at least in the shopping list phase. Your new dairy purchase is allowed when, and only when, your doctor says your milk allergy means you must drink soy milk instead of cow's milk. Similarly, your spouse needs gluten-free flour to deal with diagnosed Celiac Disease. Your child's peanut allergy requires, per your pediatrician's diagnosis of the youngster's nut allergy, a peanut butter alternative.
3. The medically necessary food must cost more than the product for which it is being substituted. Finally, you aren't going to get to deduct the full cost of your medically required food. You can write off the cost of the product that is greater than the cost of the product for which it's being substituted. So if your soy milk costs $5.00 per gallon and cow's milk is $3.00 per gallon, you can claim only $2.00 for each gallon of soy milk you buy. That means that record keeping is even more important than usual. You can't just add up the costs of all your special medically-required food. You're going to have to make a cost comparison calculation for every single allergy-related edible you buy during the tax year.
Regular rules apply, too: Once you meet these food-related requirements, deduct away, but only if those and all your other medical costs exceed 10 percent of your AGI. (If you're 65 or older, you still have the 7.5 percent limit, but that lower limit ends this year.)
Yes, I'm repeating this because if you know you're not going to be close to that cutoff, there's no need to go to the trouble of tracking your allergy-related food purchases.
And note the word "exceed." An AGI of $70,000 means that you need medical expenses of more than $7,000. And then only the amount above that threshold counts. So your $7,500 in qualifying medical deductions will get you a $500 claim on Schedule A.
Yes, $500 isn't an amount, if you'll pardon my allergy analogy, to sneeze at. But your $70,000 puts you in the 25 percent tax bracket, meaning that $500 deduction saves you just $125 on you tax bill.
You have to decide if that amount is worth the extra effort connected to your special medical meals.
If your answer is yes, or you have lots of other itemized deductions to claim, go for it. But just make sure you know all the rules before you make the deduction claims.
That's a non-medical remedy that will make you feel a whole lot better at tax time.
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Thanks for pointing out the cost/benefit of keeping track of your expenses. I see too many clients come in with a detailed list of all their expenses and are disappointed when I have to tell them their hard work didn't add up enough to get a tax deduction.
Posted by: Brian | Tuesday, August 23, 2016 at 05:56 PM