Are Drug Rehab Expenses Tax Deductible?[Guide]

Article Overview

Are Drug Rehab Center Expenses Tax Deductible?

Yes, you can deduct drug rehab center expenses from your taxes. However, there are certain rules and limitations to consider. We will go through the basics in this guide.

Going to rehab for a drug and alcohol addiction can be extremely costly whether you have private health insurance or have no insurance. Even in the case of having health insurance, there’s usually a deductible to consider. Some health insurance plans have very high deductibles, meaning that you could be left with paying or financing thousands on your own before your health insurance kicks in.

Many people do not know that in certain circumstances and with some limitations, out-of-pocket payments to drug rehab centers qualify as a tax-deductible medical expense. Rehab after all is a medical expense.

The keyword is “out of pocket.” You cannot deduct health insurance expenses that have been paid for by your health insurance plan. Only what you’ve covered to satisfy the deductible or other instances where you’ve paid out of pocket for your care.

In cases where you have to completely pay out of pocket because of a lack of health insurance, then you are able to deduct this amount according to the limitations provided by federal tax laws.

What are the Rules and Limitations of Deducting Drug Rehab Expenses?

The IRS has certain rules and limitations when it comes to deducting drug rehab expenses from your taxes.

The first and most important is that you can only deduct a total of what exceeds 7.5% of your Adjusted Gross Income. Therefore, if you have an AGI of $50,000 and you’ve attended rehab, you can only deduct the amount that goes over $3,750.

For example, if you’ve paid $10,000 out of pocket, you can deduct $6250 of those expenses. The IRS believes that utilizing 7.5% of your income is not as big of a dent as say, 20% of your income. Below we have some step-by-step instructions for calculating your rehab medical expense tax deduction.

So as you can see, deducting drug rehab costs is absolutely legal. Visit the IRS.gov site to learn more about drug rehab center tax deductions.

Why Are Drug Rehab Center Expenses Deductible?

Addiction is a disease, much like diabetes or any heart condition. Therefore, if you are being admitted to a program to treat the disease, it qualifies as a medical expense.

It’s not just an opinion that addiction is a disease but a medical finding and fact. The clinical term for addiction is Substance Use Disorder (SUD). The condition is listed in the DSM-5, the updated diagnostic manual for medical and clinical professionals. Any treatment related to solving the addiction problem is considered a medical expense.

What Can I Do to Prepare for Deducting Rehab Expenses from My Taxes Properly?

Here is a step-by-step how-to on gathering the information you need to claim the deduction for drug rehab on your taxes properly.

1. Gather all statements and proof of payments.

2. Calculate the amount paid in total medical expenses.

3. Calculate your Adjusted Gross Income for the year.

4. Deduct 7.5% of your AGI from the total you’ve calculated in medical expenses.

5. After you deduct 7.5% of your AGI from the total, you then have the amount that you can deduct and claim on your taxes.

If you are unsure if you can get through this step-by-step process, bring in a professional. That way, you can have peace of mind that your medical expenses are correctly calculated and deducted.

Taxes are complex, and calculating them on your own might make you uncomfortable. Having a professional on your side that knows the federal and state tax laws, mathematics and calculations is always your best bet.