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Medical Expenses

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The term medical expenses refers to certain dental and medical expenses deemed by the IRS to warrant special tax treatment. They are a "below the line" deduction and must be claimed on Schedule A of a taxpayer's return. For example, in 2009, only medical expenses that exceed 7.5% of a taxpayer's adjusted gross income (AGI) may be claimed as a deduction.

Taxpayers can only claim the deduction for medical expenses paid for within the tax year regardless of when the medical expenses were accrued. Medical expenses paid by insurance companies cannot be claimed as a deduction.

A flexible spending arrangement (FSA) set up by a taxpayer's employer allows the taxpayer to set aside pre-tax dollars with which to pay medical expenses. In this case the medical expenses are deducted from an employee's taxable income without having to exceed the 7.5% of AGI threshold. Medical expenses paid with an FSA cannot be included as a medical expense deduction.

IRS publication 502 contains more in-depth treatment of medical expenses.

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