Can You Claim Co-pays on Your Taxes?
A co-payment or co-pay is a fee that your health insurer requires you to pay when you receive medical care. Because co-pays are out-of-pocket medical costs, they qualify as tax-deductible expenses. However, not everyone will be able to claim a deduction for co-pays and other medical costs. It depends on how you fill out your taxes, your income and the total amount you paid for all medical care.
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Itemized Deductions
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You can claim deductions for co-pays and other medical expenses only if you itemize your tax deductions. If you take the standard deduction, you cannot claim deductions for these expenses. To itemize deductions, use federal Schedule A. Add up all your out-of-pocket medical and dental expenses over the past year, including co-pays, and put the total on Line 1 of Schedule A.
Adjusted Gross Income
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You can't deduct any medical expenses until they add up to more than 7.5 percent of your adjusted gross income. You calculate your adjusted gross income, or AGI, by filling out the first page of your tax return. AGI is the result of adding up all your taxable income from all sources, then subtracting certain deductions that are available to everyone, regardless of whether they itemize. Such deductions include interest on student loans, alimony payments and job-related moving expenses. Once you've determined your AGI, enter it on Line 2 of Schedule A. Multiply your AGI by 0.075 and enter the result on Line 3.
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Limit on the Deduction
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If the amount on Line 3 is larger than the amount on Line 1, then your total medical expenses do not exceed 7.5 percent of your AGI, so you can't take a deduction for medical expenses. But if 7.5 percent of your AGI is less than your total medical expenses, then subtract Line 3 from Line 1. The result is your allowable medical expenses deduction.
Flexible Spending Arrangement
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The requirement that medical expenses exceed 7.5 percent of AGI sets a high bar for claiming deductions for co-pays. For future tax planning, consider a flexible spending arrangement, or FSA, if your employer offers one. With an FSA, you ask your employer to withhold a certain amount of your pay each year. You can then use that money to pay for medical expenses that insurance doesn't cover, including co-pays and deductibles. Since you don't pay taxes on the money withheld from your pay, you get the equivalent of a tax deduction for co-pays and other expenses paid out of the FSA. One warning, though: If you have money in an FSA, you have to spend it by the end of the year or lose it. It doesn't roll over from one year to the next.
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