While this article addresses massage specifically, the following 3 money-saving suggestions may also apply to other health care out-of-pocket expenses. Certain types of massage may be applied to your tax deductions as a medical expense (1). If you have an acute or chronic condition for which you are being treated by a doctor, you may be eligible to apply the cost of medical massage treatments to your U.S. Federal Income Tax as a qualified medical expense (QME).
The Internal Revenue Service’s (IRS) general definition of medical expense is defined as costs associated with the “diagnosis, cure, mitigation, treatment or prevention of disease and the costs for treatments affecting any part or function of the body.” Whether a massage will count as a medical expense depends in large part on your medical situation as the IRS does not specifically include massage in its list of medical expenses. If the IRS can prove that your massage is solely for the purpose of improving your health rather than for treatment of a disease, then the massage would not constitute a medical expense.
It will be more believable that a massage is a medical expense if your massages are given at a medical professional’s office, rather than a spa. To determine if your massage expenditures are considered a qualified medical expense (QME), go to: www.irs.gov then type publication p502 in the search box located at the upper right-hand side of your screen.
1. Federal Tax Filing – How Much Can You Deduct?
You may deduct the aggregate amount of your out-of-pocket medical and dental expenses which exceed 7.5 percent of your Adjusted Gross Income (AGI – IRS Form 1040, line 38).
Example: Let us assume in each case the out of pocket medical expenses are $1000
If Amy’s AGI for the year was $10,000 then the amount of QME over $750 qualifies as a medical expense deduction. Amy’s qualified medical expenditures of $1000 exceed the $750 threshold by $250, therefore $250 out of the $1000 spent may be eligible as a tax credit.
Belinda’s AGI for the year was $100,000 therefore her threshold is $7500 which means that none of the $1000 spent is eligible as a tax credit.
Substantiation
Get a prescription for massage from your doctor specifying your specific medical condition. If your condition is chronic (long term condition) get a new prescription at least every 2 years. Keep your treatment receipts as well as transportation costs related to your appointment.
If you don’t qualify to receive a tax deductible credit, consider one or more of the following health related spending accounts as another way of lowering the cost of medically related massage treatment(2).
The 3 Most Common Health Account Types are
Health Reimbursement Arrangement (HRA)
Flexible Spending Account (FSA)
Health Spending Account (HSA)
Health Reimbursement Arrangement – An HRA account is an employer established, and employer controlled account used to reimburse qualified medical expenses (QME) for the employee only. Only the employer contributes to this account. Portability is at the discretion of the employer as is the ability to carry funds over yearly.
Flexible Spending Account – The FSA is the most commonly known type of healthcare spending account. It is often referred to as a cafeteria plan because of its many options that allow you to customize the plan to some degree. FSAs are created to reimburse qualified medical expenses, health insurance premiums for premium-only accounts, and dependent care expenses.
These are third party accounts that are employer-established benefit plans to which the employee may contribute. Employee contributions are on pre-tax basis thus reducing the employee’s annual taxable income. Each year the money must be used, any unused funds belong to the employer. The funds are not portable – in other words if you leave the job you lose the money. The following is the policy of the Aetna administered Flexible Spending Account regarding massage(3)
When recommended by a health care professional for a medical condition, the cost of massage therapy is a qualified medical expense. Submit evidence of medical necessity (e.g., prescription, doctor’s note) with the request for reimbursement.
When the cost of massage therapy is for “general health”, it is not a qualified medical expense.
Health Savings Account (HSA) was last on the scene. The HSA is a tax-exempt trust or custodial account created to pay for qualified medical expenses of the account holder and his/her spouse/dependents. Any individual may open an HSA. Check with your bank or tax advisor about opening an HSA, as there are other unique provisions that must be adhered to. The major difference with this type of account is that the money belongs to you! The tax free contributions go with you.