Medical expense deductions can provide significant tax relief for individuals facing high healthcare costs. While the federal tax code allows taxpayers to deduct qualified medical expenses that exceed 7.5% of adjusted gross income (AGI), state-level tax codes vary widely in how they treat these deductions. In this blog, we explore how different U.S. states handle medical expense deductions, and what you need to know to maximize your savings at both the federal and state level.
Federal Medical Expense Deduction: A Brief Overview
At the federal level, taxpayers who itemize deductions on IRS Schedule A can deduct qualified medical expenses that exceed 7.5% of their AGI. These expenses include payments for diagnosis, treatment, prevention of disease, surgeries, dental and vision care, prescription drugs, and insurance premiums (including long-term care, in some cases).
However, this deduction only benefits those who itemize, and the threshold can be high for many taxpayers to surpass. State-level conformity or divergence from this federal rule can further affect how much relief individuals ultimately receive.
Conforming vs. Non-Conforming States
Some states conform closely to federal tax laws, adopting most or all of the federal tax code, including medical deductions. Others decouple or diverge significantly, applying their own rules or not allowing itemized deductions at all.
Here’s how states generally fall into three categories:
- Conforming States: Fully or mostly follow federal rules, including the 7.5% AGI threshold.
- Modified Conformity: Follow federal definitions but with different thresholds or limitations.
- Non-Conforming or No Deduction: Do not allow medical expense deductions, or do not have individual income taxes.
States That Allow Full Federal Medical Expense Deductions
Several states mirror federal tax law and allow itemized deductions, including medical expenses exceeding 7.5% of AGI. In these states, if you qualify for the deduction federally, you generally qualify at the state level too. Examples include:
- Arizona
- California
- Colorado
- Georgia
- Oklahoma
- Virginia
- Wisconsin
In these states, the deduction appears on the state’s Schedule A or equivalent, and the AGI threshold generally aligns with federal limits.
States That Apply a Different AGI Threshold
Some states allow medical expense deductions but apply a different AGI threshold or additional limitations. For example:
- Minnesota: Uses federal definitions but imposes its own limitations for itemized deductions.
- Oregon: Has a lower AGI threshold for seniors but also applies income caps to qualify.
- Hawaii: Allows deductions similar to federal rules but subject to state-specific itemization adjustments.
Taxpayers in these states must carefully review local rules or consult state tax booklets to determine eligibility.
States That Do Not Allow Medical Expense Deductions
Some states either do not allow itemized deductions at all, or exclude medical expenses from allowable deductions. This means even if you can deduct these costs federally, you will receive no benefit at the state level. Examples include:
- Massachusetts: Does not allow itemized deductions on its state return.
- Pennsylvania: Does not allow deductions for medical expenses on its personal income tax return.
- New Jersey: Has its own set of allowable medical deductions but with stricter thresholds.
- Connecticut: No itemized deductions allowed; income tax is based on adjusted gross income with limited credits.
In these states, regardless of how high your out-of-pocket costs are, you will not receive additional relief through state tax deductions.
States With No Income Tax
There are nine states with no state income tax, and as a result, no medical expense deduction is available at the state level simply because there’s no income tax return filed. These states include:
- Alaska
- Florida
- Nevada
- New Hampshire (no income tax on wages, but taxes interest/dividends)
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Residents of these states only need to consider the federal deduction when planning around medical expenses.
Special Considerations for Seniors
Some states provide enhanced deductions or credits for seniors. For example, Oregon and Georgia allow more generous treatment of medical expenses for taxpayers over a certain age. In these cases, retirees and those on fixed incomes may benefit from deductions that are not available to younger taxpayers.
Impact of Standard Deduction Alignment
Several states conform to federal standard deduction amounts. In those states, if you claim the standard deduction on your federal return, you must do the same on your state return—thereby forfeiting itemized deductions, including medical expenses. States like Idaho and South Carolina follow this conformity model.
Therefore, taxpayers in these states must evaluate whether itemizing federally makes sense to unlock the state-level deduction.
Medical Expense Deduction Planning Tips
- Bunching Expenses: If your medical costs fluctuate year-to-year, consider timing elective procedures or paying bills in one year to surpass the threshold.
- Review State Thresholds: If your state uses a different AGI calculation or threshold, run the numbers both ways.
- Use Tax Software: State-specific tax software can help you automatically determine if you qualify for the deduction and where to report it.
- Consult Your State’s Department of Revenue: Each state’s website provides guidance and forms detailing deductions.
Recordkeeping Is Essential
Whether deducting medical expenses federally or on a state return, thorough documentation is necessary. Keep:
- Receipts and invoices
- Explanation of Benefits (EOB) from insurance
- Proof of payment (credit card/bank statements)
- Prescription orders or physician recommendations (for medically necessary equipment)
Conclusion: Know Your State’s Rules to Maximize Medical Deductions
Medical expenses can add up quickly, and knowing how both federal and state tax systems treat these deductions can significantly impact your bottom line. While the federal government provides a framework, each state interprets and implements medical expense deductions differently. Whether you live in a state that offers generous alignment with federal rules or one that doesn’t allow itemization at all, being informed about your local tax code ensures that you don’t miss out on valuable tax savings.
When in doubt, consult a tax professional or refer to your state’s tax department resources to ensure your medical expenses are properly accounted for—and deducted where allowed.
