Paying for treatment: Are drug rehab expenses tax deductible?
Before you conclude that a trip to an addiction treatment center is too expensive, let’s examine an important question: Are drug rehab expenses tax deductible?
Few situations are more stressful than needing addiction treatment for yourself or a loved one and trying to figure out whether or not you can afford it. Even if you have commercial or private insurance to pay for quality drug and alcohol treatment at a facility like Cornerstone of Recovery, your plan’s deductibles — the amount you pay annually before your insurance company pays for its portion of the cost of covered services — can still be expensive. According to EHealthInsurance.com, a private online marketplace for health insurance, a study of 2020 insurance costs found that “the average annual deductible for single, individual coverage is $4,364 and $8,439 for family coverage.”
Even after you’ve met your deductible, insurance doesn’t pay everything: It varies from plan to plan, but health insurance typically covers as much as 80 percent of the costs, to as little as 50 percent. And when you take into account that a typical 30-day drug rehab stay includes meals, lodging, therapy, medical treatment, psychiatric treatment and much more, those costs can be high.
But are drug rehab expenses tax deductible? The short answer: Yes.
So How Does That Work?
According to the Internal Revenue Service, in its publication regarding medical and dental expenses, there is a wealth of information on how, exactly, drug rehab expenses are tax deductible. For that to happen, however, you’ve got to be prepared to file 1040 Form — the long-form tax return, so that you can itemize these deductions.
What are itemized tax deductions? Good question. According to the financial advice website Investopedia, “an itemized deduction is an expenditure on eligible products, services, or contributions that can be subtracted from adjusted gross income (AGI) to reduce your tax bill. Itemized deductions are listed on Schedule A of Form 1040, and the amount they lower your tax bill depends upon your filing status and tax bracket.” While taxpayers have the option to itemize deductions of claim the standard deduction that applies to their filing status, “the decision should hinge on a calculation of which deduction type lowers your tax liability the most,” Investopedia continues:
“If you're filing as a single taxpayer … or you're married and filing separately … you will likely be better off taking the standard deduction if your itemized deductions total less than that amount. The same applies to a married couple filing jointly.” In other words: The expenses incurred for addiction treatment for yourself or a loved one are expensive, but are they expensive enough to warrant being listed as an itemized tax deduction?
It depends, of course, on how much you spend. Keep in mind that while a private or commercial health insurance plan will cover some of the cost, your out-of-pocket expenses can add up quickly. Fortunately, however, so too can the various expenditures that you can itemize on your tax return.
So Are Drug Rehab Expenses Tax Deductible?
The IRS Publication 502 on Medical and Dental Expenses “explains the itemized deduction for medical and dental expenses that you claim on Schedule A (Form 1040 or 1040-SR).” However, the IRS points out: “You can deduct on Schedule A (Form 1040 or 1040-SR) only the part of your medical and dental expenses that is more than 7.5% of your adjusted gross income (AGI),” so whether you choose to itemize those expenses is also determined by (a) how much they come to and (b) what your annual income is.
Here what it has to say about the question of, “Are drug rehab expenses tax deductible?”:
- Alcoholism: “You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for alcohol addiction. This includes meals and lodging provided by the center during treatment.” But that’s not all: “You can also include in medical expenses amounts you pay for transportation to and from Alcoholics Anonymous meetings in your community if the attendance is pursuant to medical advice that membership in Alcoholics Anonymous is necessary for the treatment of a disease involving the excessive use of alcoholic liquors.”
- Drug Addiction: “You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for drug addiction. This includes meals and lodging at the center during treatment.”
- But what about mileage? What if you drive a loved one several hundred miles to a reputable drug and alcohol treatment center, or you choose to purchase a plane ticket to go to treatment out of state? That’s tax deductible as well, according to the IRS: “The standard mileage rate allowed for operating expenses for a car when you use it for medical reasons is 20 cents a mile.” Deductible transportation expenses, the IRS adds, include “bus, taxi, train, or plane fares or ambulance service.” The case can even be made that if you travel to a drug and alcohol treatment facility to take part in the treatment process — family therapy, for example, or a family therapy weekend — that those expenses could be considered tax deductible: “Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment” is allowable, according to the IRS.
Keep in mind, the question of “are drug rehab expenses tax deductible?” is one best asked of a professional accountant or tax preparer, all of whom can help you navigate this financially complex issue when it comes time to prepare your tax returns. A reputable drug and alcohol treatment center will provide you with an itemized list of charges for the treatment of yourself or a loved one, so that you have that paperwork when it comes time to prepare your taxes — hopefully when the treatment you’re paying for has changed a life for the better.