![]() ![]() HSAs and MSAs require that you have a high deductible health plan and are established for paying medical expenses. This alphabet soup of health-saving-plans allows you to make tax-free withdrawals for medical purchases. If you combine these two, you have a “perfect” combination for deducting medical expenses. Your AGI is low, maybe due to low taxable retirement income or being out of work for part of the year.Your medical expenses are high, perhaps due to a serious illness or injury, or just needing braces for a couple of teenagers.So, if your AGI is $50,000, the first $3,750 ($50,000 x 0.075) of unreimbursed medical expenses doesn't count.Īlthough it seems difficult to claim these deductions, there are situations when it actually works out. Medical costs are deductible only after they exceed 7.5% of your Adjusted Gross Income (AGI).You must itemize deductions to write off medical expenses, and only about one-third of taxpayers have itemized in the past.The catch? This deduction has two high hurdles: Most taxpayers know that medical expenses are deductible but few of us ever actually benefit from the deduction. If the premiums are paid with taxed money, then the benefits are tax-free. If you receive benefits under a disability insurance policy and the premiums are paid with pre-tax money, the benefits are taxable.You can withdraw money from retirement plans without the 10% penalty for early withdrawals if you have qualifying medical expenses greater than 7.5% of your AGI.Money you put in a Health Savings Account (HSA), Archer Medical Savings Account (MSA), or Flexible Spending Account (FSA) can grow tax free and you can make tax-free withdrawals for medical purchases.If you have high expenses or low AGI, or both, you might meet this threshold. Medical expenses are only deductible after they exceed 7.5% of your Adjusted Gross Income (AGI). ![]()
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