Residents of Indiana face a key limitation: the state does not allow you to deduct unreimbursed medical expenses on individual income tax returns—even though such deductions are permitted federally. This disparity means that tracking medical expenses matters only for federal tax purposes, not for your Indiana return. In this blog, we’ll explore the reasons behind Indiana’s rules, how they differ from federal policy, and what Indiana taxpayers should focus on instead.
🏛️ Indiana’s Tax Policy: No State-Level Medical Deductions
Unlike the IRS, which permits deductions for medical and dental costs exceeding 7.5% of adjusted gross income (AGI), Indiana state tax law explicitly disallows itemized deductions for these expenses. Indiana uses a flat income tax system and does not permit taxpayers to deduct unreimbursed medical expenses when filing Form IT-40 or IT-40PNR :contentReference[oaicite:0]{index=0}.
🔍 Why Indiana Takes a Different Approach
Indiana’s tax law is designed for simplicity and consistency. The state eliminated many federal-style itemized deductions in favor of a streamlined system. As a result, deductions for medical expenses, state and local taxes, and other items common on federal Schedule A do not apply for state income tax :contentReference[oaicite:1]{index=1}. This approach helps keep the Indiana tax code straightforward but limits opportunities for taxpayers with high healthcare costs.
📜 Comparisons: Federal vs. Indiana
| Policy Aspect | Federal (IRS) | Indiana State |
|---|---|---|
| Medical Expense Deduction | Allowed if >7.5% of AGI | Not allowed under state law |
| Itemized Deductions | Yes (Schedule A) | No, state does not conform |
| Tax Filing Form | Form 1040, Schedule A | Form IT-40 / IT-40PNR only |
🧾 What Indiana Taxpayers Should Do
Even though Indiana disallows these deductions at the state level, it’s still important to track medical expenses for federal tax purposes. Here’s what to focus on:
- Use federal Schedule A to claim deductible expenses above 7.5% of AGI.
- Keep detailed records: receipts, Explanation of Benefits (EOBs), canceled checks.
- Retain documentation in case of federal audit—even though it won’t impact your Indiana return.
✅ Final Takeaway
Indiana residents cannot deduct medical expenses on their state returns, regardless of the amounts paid. However, these expenses remain deductible on your federal return if they exceed the IRS threshold. Keep accurate records, claim deductions federally, and understand that Indiana’s simplified tax code doesn’t include this benefit. For state tax filing, focus on allowable subtractions, credit opportunities, and Indiana’s flat-rate system. When planning medical-related tax strategies, remember that your federal return—not your state return—will determine potential deductions.
Pro Tip: Review Indiana’s deduction list annually. While medical expenses are excluded, other specific deductions—like long-term care premiums and healthcare sharing ministry fees—may be allowed under state law :contentReference[oaicite:2]{index=2}. Stay informed to maximize your tax results.
