One of the most important steps that you can take if you have become dependent on drugs or alcohol is to take advantage of drug or alcohol rehab. Doing so will allow you to receive assistance in creating a new life for yourself, one that does not depend on those substances. In fact, getting help is often a necessary element as the obstacles experienced during this process tend to be difficult to overcome on your own.
That said, you may be concerned about the financial implications of drug rehab. Fortunately, many health insurance providers will assist in the cost of treatment. Another important financial element to consider is tax deductions as those can also dramatically reduce your total amount of drug rehab-related expenses.
What are tax deductions? Those are any approved expenses that decrease the amount of your annual income that is taxable. For example, they can include money that has been spent on charitable contributions and on student loan interest payments.
Are Medical Expenses Tax Deductible?
Generally, medical expenses are tax deductible although there are a few important factors to keep in mind.
Of course, any of your medical expenses that have been reimbursed by insurance companies or by other entities are not.
Also keep in mind that these expenses must have been spent in the year of the tax return being filed. For example, if you had related expenses from December 2021 to September 2022 but forget to include the December 2021 expenses on your 2021 return, you cannot add them to your 2022 one. To receive those benefits, you must submit an adjusted 2021 return.
If you do need to adjust a previous return for this reason, make sure that the relevant timeline for claiming a refund has not passed. That will be whichever of these two dates is later: two years from when the tax was paid or three years from when that year’s tax return was initially filed.
Probably the most important factor to consider is that qualified expenses must exceed 7.5% of your adjusted gross income in order to be eligible for deductions. So, if your AGI is $50,000, the first $3,750 of your medical expenses that year are not eligible to be included in your list of deductions.
Conversely, any expenses above that amount will lower your taxable income. For example, if you had an AGI of $50,000 and medical expenses of $20,000, your taxable income would be $33,750. That would be the result of $16,250 in eligible medical expenses reducing your taxable income from $50,000 to $33,750.
Keep in mind that to take advantage of tax-deductible medical expenses, you will need to fill out Form 1040 and engage in itemization. That means that you should keep all of your invoices, receipts, medical records and travel logs, doing so as they are issued if possible since that is much easier than attempting to secure all of that documentation after the fact. Also consider creating a spreadsheet.
Another thing to take into account is that if your eligible medical expenses add up to a smaller amount than your standard deduction, you may prefer to use the latter instead.
How much is your standard deduction? For the 2022 tax year, single taxpayers, including those who are married but filing separate tax returns, can take advantage of a standard deduction of $12,950. Meanwhile, the corresponding figures for heads of household is $19,400 and for married couples is $25,900.
How Being Married Impacts Your Taxes
If you are married, one of the reasons why you may want to consider filing separately from your partner is because of that 7.5% figure, particularly if the person who is incurring the medical expenses received significantly less income that year.
Consider an example in which one spouse earns $50,000 that year and the other $25,000. If they file jointly, the amount that is not deductible would be $5,625 or 7.5% of $75,000. However, if the person with the medical expenses was the one who earned $25,000, that individual filing separately would only experience a not-deductible amount of $1,875, a significant difference from half of a joint filing: $2,812.50.
With that said, do also take into account unrelated tax breaks that you would lose by filing separately.
Also note that if any medical expenses are paid from a shared checking account, in most cases, those will be viewed by the IRS as having been paid equally by both people.
Is Drug Rehab Defined as a Medical Expense?
Drug rehab is defined as a medical expense. More specifically, according to IRS Publication 502, money paid for inpatient treatment at a therapeutic center that has been designed for that purpose is a deductible expense. This takes into account not just the medically related cost of your stay but also expenses for related housing and for providing you with meals.
The same is true for those who are taking advantage of the same types of services as they relate to alcohol addiction.
Transportation to a treatment center is included as a covered medical expense. This is regardless of if the trip is being done via plane, train, bus, taxi or car. Note that if a car is used and you want to take advantage of the standard medical mileage rate, that was 18 cents for the first half of 2022 and 22 cents for the second half of that year.
Another tax benefit to consider is that transportation expenses that are related to a meeting that is associated with a drug or alcohol addiction support recovery organization, such as Narcotics Anonymous or Alcoholics Anonymous, may be included if attending those gatherings has been deemed medically necessary.
If you are seeing a psychologist or a psychiatrist, payment to that individual or to the organization that they work for will generally be an approved medical expense.
As expected, the cost out of your pocket for prescribed medications is an eligible medical expense as well. However, non-prescription medications and vitamins are, in almost all cases, not. In addition, the cost of purchasing marijuana may not be included. Even if you have been prescribed it, it is an illegal substance under federal law, so that money spent cannot be deemed as a deductible expense.
Note that going on a vacation with the intent for it to improve your health is also not eligible for deductions, even if a medical professional has recommended that you do so. The same is usually true for expenses related to going to a gym, even if a doctor tells you that doing so will help improve the effectiveness of your rehab experience.
If a dependent, such as a child, is the individual who is taking advantage of drug rehab and incurring these medical expenses, in most cases, those will be tax deductible for you.
State Income Taxes
Also consider the impact that drug rehab expenses can have on your state tax return.
Of course, this varies by state, but, depending on the relevant location, the impact can be significant. For example, New Jersey, where we are located, has a low adjusted gross income threshold for medical expenses of 2%. In other words, even if you have eligible medical expenses that are too low to have a bearing on your federal taxes, they could impact your state taxes.
Deciding whether to take advantage of drug rehabilitation is one of the most important decisions that you will ever make, and, in many cases, the financial aspect of that will be an essential part of the discussion. Knowing that you will receive what could be a significant tax break may provide the financial relief that you need in order to take this important next step.
If you would like to learn more about the services that we offer here at Garden State Detox and how we can help you rehabilitate, reach out to us today by phone or by messaging us through our website. We are conveniently situated an hour’s drive from Newark Liberty International Airport and a little more than an hour’s drive from New York City and accept admissions on a 24/7 basis.