Medical expenses are not taxed if they exceed 7.5% of AGI. Medical care expenses include amounts paid for the diagnosis, cure, medication, treatment, or prevention of a disease or physical handicap or for the purpose of affecting any structure or function of the body. The term medical care encompasses the amounts paid for insurance coverage of medical care. The reimbursements cause a reduction in the deductible amount for medical care expenses.

Here is an example to explain:

The following expenses were paid by Welch in 2024:

• Insurance policy premiums for loss of earnings caused by sickness or accident $3,000.
• Rehabilitation following spinal surgery $2,000.
• The premium for an insurance policy that covers reimbursement for the expense of prescription drugs $500.

In 2024, Welch was reimbursed for $1,500 of the $2,000 she spent on physical therapy through insurance coverage provided by her employer. Welch's 2024 income tax return can only claim what amount for medical expenses, taking into account the adjusted gross income percentage threshold?

Explanation:

Loss of earnings insurance cost is not deductible. The deductible medical expenses are $1,000, which is the amount that will be reimbursed for $1,500, plus $500.