Understanding the differences between federal and California medical expense deduction rules is essential for effective tax planning, especially for those who incur significant out-of-pocket healthcare costs. While the Internal Revenue Code (IRC) provides guidelines for deducting medical expenses at the federal level, states like California have the option to conform or diverge from those rules. California generally aligns with federal standards but applies its own thresholds and nuances. This detailed blog will walk you through how federal and California tax rules differ regarding medical expense deductions, who qualifies, how much can be deducted, and how to report it.
Medical Expense Deductions: Federal Overview
At the federal level, the Internal Revenue Service (IRS) allows taxpayers to deduct qualified, unreimbursed medical and dental expenses as itemized deductions on Schedule A (Form 1040). These expenses must exceed a specific percentage of the taxpayer’s adjusted gross income (AGI) to be deductible. As of the 2025 tax year, the threshold is 7.5% of AGI.
This means if your AGI is $100,000, only medical expenses exceeding $7,500 would be deductible. For many individuals and families, especially those with insurance, reaching this threshold may be difficult. However, in cases of chronic illness, long-term care, or significant surgeries, this threshold can be surpassed.
California’s Medical Expense Deduction Rules
California also allows a deduction for qualified medical expenses but applies a higher threshold than the federal government. For California state income tax purposes, medical expenses are deductible only to the extent they exceed **7.5% of federal AGI** for tax years prior to 2019 and **10% of federal AGI** for tax years beginning after 2019, unless federal law changes to adopt a lower percentage. As of 2025, California maintains the **10% AGI threshold** for medical expenses.
This means that a taxpayer with an AGI of $100,000 would need to have more than $10,000 in out-of-pocket qualified medical expenses to deduct any portion on their California tax return, compared to $7,500 at the federal level.
Key Differences: Federal vs. California
| Criteria | Federal (IRS) | California (FTB) |
|---|---|---|
| Threshold for Deduction | 7.5% of AGI | 10% of AGI |
| Itemized Deduction Required? | Yes | Yes |
| Follows IRS Definition of Medical Expenses? | Yes | Mostly Yes, with some exceptions |
| Can Use Standard Deduction Instead? | Yes, but cannot deduct medical expenses | Yes, but cannot deduct medical expenses |
What Qualifies as a Deductible Medical Expense?
Both federal and California tax codes generally conform to the IRS definition of qualified medical expenses. These include:
- Doctor and hospital visits
- Surgeries and medical procedures
- Prescription medications
- Dental and vision care
- Long-term care and nursing services
- Medical insurance premiums (with restrictions)
- Transportation and mileage for medical purposes
- Medical equipment and supplies prescribed by a doctor
However, it’s important to note that cosmetic surgery, general health items (like vitamins), and over-the-counter medications (without a prescription) are not deductible under either federal or California rules.
Reporting the Deduction on Tax Returns
Federal Return: To claim medical expenses on your federal return, you must itemize deductions on Schedule A (Form 1040). Enter the total medical expenses on Line 1 and subtract 7.5% of your AGI to determine the deductible amount.
California Return: California Form 540 includes a Schedule CA (California Adjustments) that lets taxpayers reconcile differences between federal and California deductions. Medical expenses should be entered under the itemized deductions section, applying the 10% AGI threshold. If you are filing Schedule A for the federal return, use the California Schedule CA (540) to adjust your itemized deduction for state purposes.
Impact of the Higher Threshold in California
The higher 10% AGI threshold in California means that many taxpayers who benefit from medical expense deductions on their federal return might not receive the same benefit on their state return. This has the following implications:
- Only those with very high out-of-pocket expenses relative to income will qualify at the state level.
- Seniors and those with chronic conditions may be disproportionately affected.
- California residents may need to rely on federal tax relief or other strategies such as HSAs to manage healthcare-related tax burdens.
Can You Claim Medical Expenses on Both Returns?
Yes, if you itemize your deductions and your medical expenses exceed both thresholds (7.5% for federal and 10% for California), you can claim deductions on both returns. However, you must apply each state’s respective threshold to the same pool of qualified expenses. You cannot double-count or inflate amounts for either jurisdiction.
Tax Planning Tips for California Residents
- Bunch medical expenses: Try to schedule and pay for major medical treatments within the same tax year to exceed the threshold.
- Track all expenses meticulously: Even small co-pays, transportation mileage, and dental expenses add up over time.
- Utilize Health Savings Accounts (HSAs): Contributions are federally tax-deductible and grow tax-free when used for qualified expenses. However, California does not conform to federal HSA tax treatment and taxes earnings from HSAs.
- Consult a professional: A tax advisor can help calculate thresholds and ensure your deductions are maximized under both systems.
Special Considerations for Seniors
Unlike in some other states, California does not offer a lower AGI threshold for taxpayers over age 65. At the federal level, all taxpayers (regardless of age) use the 7.5% threshold. The lack of an additional break in California makes it more difficult for seniors with large medical costs to benefit unless those expenses are exceptionally high.
Conclusion: Navigating the Federal and California Rules
While both the federal and California tax systems allow medical expense deductions, the thresholds and reporting requirements differ. The 10% AGI threshold imposed by California makes it harder to qualify compared to the 7.5% threshold at the federal level. For California residents, it’s crucial to understand both systems to ensure they don’t leave valuable deductions unclaimed.
To maximize your tax benefits, track all eligible expenses carefully, itemize where advantageous, and consider consulting a tax professional to help you navigate the differing thresholds. Strategic planning and good recordkeeping can make a significant difference in your overall tax liability.
