Can I Deduct a Medical Bill I Haven't Paid in Full Yet?

Many people are unsure about whether they can claim tax deductions for medical bills they have yet to pay in full. The rules surrounding this can be quite intricate, which is why we will break down the ins and outs to help you understand better.

What Are the General Rules?

When it comes to deducting medical bills, the Internal Revenue Service (IRS) sets guidelines based on the amount you actually paid, not the total bill. This makes it complicated to claim deductions when the bill is not fully paid. In fact, unless you itemize and have a bill you've paid over 7.5% of your Adjusted Gross Income (AGI), the chances of getting a deduction are slim.

US Tax Reporting Basics

In the United States, individuals tend to report their taxable income and deductions using a cash basis reporting method. This means that expenses must be included in your taxable income and deductions only when you have actually paid them. If you have not paid a bill in full, then that portion of the bill cannot be included in your deductions, regardless of the total bill amount.

Timing of Deduction

The timing of when you can claim a deduction is also crucial. The IRS only allows you to deduct medical expenses based on payments you made during the tax year. For example, if you paid $1,000 towards a $5,000 medical bill in 2022, you can only deduct the $1,000 if the payment was made in 2022. This rule applies to payments made using a loan or credit card. Even though you may still be making payments on the loan, the bill is considered paid in full for the purposes of your tax deductions.

Actions You Can Take

While you cannot claim the entire medical bill, here are some actions you can take to potentially claim some of the expenses:

Pay the bill in full: This will allow you to claim the entire amount, assuming you meet the 7.5% AGI threshold. Use a loan: Taking out a loan to pay the bill can be an alternative. The entire loan amount is considered paid in full for tax purposes, and the entire amount may be deductible if it meets the 7.5% of AGI threshold. Use a credit card: Charge the bill to a credit card and pay off the credit card in the same tax year. The entire amount charged will be deductible if the 7.5% of AGI threshold is met.

Conclusion

Understanding how tax deductions work for medical expenses is crucial for maximizing your tax savings. While you cannot claim unpaid medical bills, you can take advantage of other financial maneuvers to make it more affordable. Always consult with a tax professional to ensure compliance with IRS regulations and to take full advantage of any available deductions.