Medical and dental expenses are among the most significant costs that individuals and families face each year. Fortunately, the IRS allows you to deduct a portion of these costs if you itemize deductions on Schedule A of your Form 1040. However, not all of your medical expenses are deductible. A key limitation is the 7.5% Adjusted Gross Income (AGI) rule, which serves as a threshold for determining how much of your medical spending can be deducted. In this guide, we’ll explore how the 7.5% AGI rule impacts your tax return for 2025 and how you can make it work in your favor.
What Is Adjusted Gross Income (AGI)?
Adjusted Gross Income, or AGI, is your total gross income minus specific adjustments. It includes wages, dividends, capital gains, business income, retirement distributions, and other income sources, minus deductions like student loan interest, IRA contributions, HSA contributions, and self-employed health insurance. AGI is a crucial number because it influences your eligibility for many deductions and credits, including the medical expense deduction.
Understanding the 7.5% Rule for Medical Expense Deductions
The 7.5% AGI rule means that you can only deduct the portion of your unreimbursed medical and dental expenses that exceed 7.5% of your AGI. This threshold applies regardless of age. For instance, if your AGI is $80,000, 7.5% of that is $6,000. Only medical expenses exceeding $6,000 are deductible on Schedule A.
Calculation Example
Let’s walk through an example to make this clearer:
- AGI: $80,000
- Total unreimbursed medical expenses: $9,000
- 7.5% of AGI: $6,000
- Deductible amount: $9,000 – $6,000 = $3,000
In this case, you would be allowed to deduct $3,000 of your medical expenses on Schedule A. The first $6,000 does not count toward your deduction.
Which Expenses Count Toward the Threshold?
Only unreimbursed medical and dental expenses count toward the 7.5% threshold. These include:
- Doctor and hospital visits
- Prescription medications
- Medical equipment and supplies
- Health insurance premiums (if not pre-tax or reimbursed)
- Long-term care services and insurance (within IRS limits)
- Dental care, vision care, and mental health treatment
- Transportation to medical appointments
Expenses that are reimbursed by insurance or paid with pre-tax dollars (such as through an HSA or FSA) do not count toward the threshold.
Strategies to Maximize the Deduction
Because the 7.5% threshold can limit your ability to deduct medical expenses, consider these strategies to increase your deduction or improve your tax efficiency:
1. Bunching Medical Expenses
If you expect high medical costs, try to schedule elective procedures and other qualifying expenses within the same tax year. This strategy, known as “bunching,” may help you exceed the 7.5% threshold in one year rather than spreading expenses over multiple years where they may not be deductible at all.
2. Timing Payments
Medical expenses are deductible in the year they are paid, not necessarily the year the services are received. If you anticipate being close to the 7.5% threshold, consider prepaying for medical services or prescriptions before year-end.
3. Using After-Tax Dollars for Deductibility
Expenses paid with funds from Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) are not deductible because they are already tax-advantaged. However, if you use after-tax dollars and meet the 7.5% threshold, those amounts may be deductible.
4. Including Qualified Dependents
Medical expenses paid for a qualified dependent can be included in your deduction total. Even if the individual does not live with you or you do not claim them as a dependent on your return (in limited situations), their medical expenses may count if you provided more than half of their support.
Impact on Itemizing vs. Standard Deduction
To deduct medical expenses under the 7.5% rule, you must itemize your deductions using Schedule A. In 2025, the standard deduction is expected to be:
- $15,750 for single filers
- $31,500 for married filing jointly
If your total itemized deductions—including mortgage interest, state and local taxes, charitable contributions, and medical expenses—do not exceed the standard deduction, it may not be worth itemizing.
When Medical Deductions Have the Greatest Impact
The medical expense deduction under the 7.5% AGI rule is most beneficial for taxpayers who:
- Have a low to moderate AGI and high out-of-pocket healthcare costs
- Are self-employed and purchase their own insurance (with coordination of other deductions)
- Have high-cost medical events or chronic health conditions
- Are elderly or retired and pay for long-term care or assisted living services
Documentation and IRS Requirements
The IRS requires you to maintain thorough documentation of your expenses. Keep copies of:
- Receipts and invoices from healthcare providers
- Proof of payment (bank statements, credit card records)
- Prescriptions and doctor’s notes if necessary
- Mileage logs for travel to and from medical appointments
You do not need to submit this documentation with your tax return, but you should retain it in case of an IRS audit.
Conclusion
The 7.5% AGI rule for medical deductions in 2025 can seem like a high hurdle, but with proper planning and recordkeeping, it is possible to take advantage of this tax benefit. Whether through timing your expenses, combining deductions, or itemizing strategically, understanding how this threshold works can help reduce your taxable income. For many taxpayers—especially those with substantial healthcare costs—it can be a valuable way to lower their tax liability.
