Tax deduction question RE medical bills

In the past we've always paid medical bills when they came in, so I had no question of which tax year the bill goes on.  See the doctor in 2020, pay the bill in 2020, deduct it for 2020.  However, because we were unsure of how to navigate our new healthcare plan we were recently got hit with a high deductible and had to set up a payment plan which will stretch all the way to March 2022 ('Merica!)

Do I deduct the entire bill for this tax year, or do I deduct the payments in the year they are made?  I would guess that I deduct them in the calendar year that I make the actual payments, I just want to double check because this is the first time I've ever run into a medical bill that we actually needed a payment plan for.

I think it might depend on whether your payment plan amounts to a loan/debt?  For example, credit card charges are deductible in the year incurred/charged, even if paid later (IRS Publication 502, page 2-3 https://www.irs.gov/pub/irs-pdf/p502.pdf).  Are you paying the provider directly or paying some other entity?  I don't know whether that would matter, or what the exact criteria would be.  Maybe someone else can be more helpful.

when you pay it ( like mjc said-if on a credit card, you paid it)

I’m making monthly payments directly to the hospital using my debit card which is linked to my checking account.  No credit card.  

fwiw, Intuit seems to say no https://ttlc.intuit.com/community/credits-and-deductions/help/am-i-allowed-to-deduct-medical-expenses-i-haven-t-paid-for-yet/00/26549

But i'm still (idly) wondering what happens if it's structured as a loan?

I've always based it on the year in which the bill was paid.  What I have trouble with are medical expenses incurred in one year with insurance company reimbursements not received until the following year (a union-based dental plan).  Do you assume the reimbursement in year 1 (though you have not received it yet and may not know the amount of reimbursement by the time you file the prior year's taxes) or deduct the amount of reimbursement from the following year's medical out-of-pocket costs?

Joan, IRS says:

If you are reimbursed in a later year for medical expenses you deducted in an earlier year, you generally must report the reimbursement as income up to the amount you previ-ously deducted as medical expenses.However, don't report as income the amount of reim-bursement you received up to the amount of your medical deductions that didn't reduce your tax for the earlier year.

https://www.irs.gov/pub/irs-pdf/p502.pdf (page 19)

Thank you.  That is what I have been doing and it makes sense.

I used to have a plan where we paid 100% of prescription costs upfront, but would then be reimbursed about 90% of the costs later.  So if I paid $100 at the pharmacy I would eventually receive a check for $90, and only the $10 would be deductible come tax time.  One of my idiot co-workers was deducting the entire costs paid.  I tried explaining repeatedly that since he was being reimbursed by his plan he couldn’t do that.  Apparently I’m an idiot who doesn’t know what I’m talking about.  

If that idiot ever gets audited and they see what he was doing he’ll be seriously screwed. 

I have no opinion on the advantage plans themselves, but I will say that their adverts are THE MOST ANNOYING on TV.

Well, after Tom Selleck's reverse mortgage commercials anyway.

Back up.  First, are you sure you are still itemizing deductions?  With the new tax law, for 2020 the standard deduction is $12,400 for single filers and married filers filing separately, $24,800 for married filers filing jointly and $18,650 for heads of household. Plus additional if you're over 65 or blind.

It's not worthwhile to itemize unless your itemized deductions exceed the above, based on your filing status. 

THEN, if you are itemizing, you can only deduct medical expenses that exceed 7.5% of your adjusted gross income (for 2020; next year it goes to 10%).  If your AGI is $100k and your eligible out-of-pocket medical expenses for the year are $7,501, you can deduct $1.

And the answer to your original question is, you deduct the money paid in the year it is paid.  If you do indeed itemize and you expect your medical expenses to exceed 7.5% of AGI, you might want to consider getting a 0% interest credit card, paying the entire amount in one calendar year, then paying of the credit card.

the deduction threshold on NJ is much less

Man, I wish we had an AGI of $100k.  If that were the case we wouldn’t have to set up a payment plan to pay off the hospital bill.

I do TurboTax.  It asks me questions and I put in the info.  I just wanted to know if when I gathered this year’s receipts if I put in the whole bill or just what I paid this calendar year.  Whether it gets deducted or not is up to TurboTax.  Some years we’ve had enough bills that it is itemized, some years we don’t.

spontaneous said:

Man, I wish we had an AGI of $100k.  If that were the case we wouldn’t have to set up a payment plan to pay off the hospital bill.

I do TurboTax.  It asks me questions and I put in the info.  I just wanted to know if when I gathered this year’s receipts if I put in the whole bill or just what I paid this calendar year.  Whether it gets deducted or not is up to TurboTax.  Some years we’ve had enough bills that it is itemized, some years we don’t.

Just what you paid.  Unless you want to get a 0% credit card and pay it all on the credit care NOW, then pay off the card at 0% instead of paying the hospital.  That would be counted as paying it all in 2020.

If you are married and filing jointly, you'd have to have more than $25,000 worth of deductions (all combined) to make it worthwhile to itemize.  

spontaneous said:

Man, I wish we had an AGI of $100k.  If that were the case we wouldn’t have to set up a payment plan to pay off the hospital bill.

I do TurboTax.  It asks me questions and I put in the info.  I just wanted to know if when I gathered this year’s receipts if I put in the whole bill or just what I paid this calendar year.  Whether it gets deducted or not is up to TurboTax.  Some years we’ve had enough bills that it is itemized, some years we don’t.

Somewhere in the Turbotax interview, it mentions the limits on deductibility and asks you whether you want to enter your medical expenses, so if you know that you are under the 7.5%, then you can just say no and skip that.  But the NJ threshhold is lower (2-3% IIRC.) And if you have health insurance through an employer that was withheld pretax, NJ treats it differently (not pretax), so the amount of the premiums is added back your NJ income but then they become deductible for NJ. So I do enter medical expenses in TurboTax for my return because we get the deduction for NJ, even though (thankfully) we dhave never hit the 7.5% for the Federal.