The cost of experienced professional staff, cutting-edge therapies, and room and board quickly adds up. Health insurance may cover part of your treatment costs, financial hardship forms may cover the rest. But, if your insurance denies coverage at any point during your stay, you may be left with a hefty bill.
Fortunately, Uncle Sam and the IRS provide us with a little relief in the form of tax deductions. To take advantage of these, there are two rules you must follow to recoup some of your out-of-pocket treatment expenses: (1) itemize your expenses and (2) calculate the allowable amount.
Itemize Your Rehab Expenses for Tax Deductions
First, you must itemize your deductions through Form 1040, Schedule A instead of selecting the “standard deduction.” However, if your itemized deductions for the 2019 tax year are less than $12,200 for individuals or $24,400 for jointly-filed married couples, you’ll be best served opting for the standard option.
Deductible medical expenses include the initial cost of treatment as well as ancillary services. For instance, you can claim the cost of meals and lodging, prescriptions, and even payments for transportation to treatment (e.g. Uber, ambulance, plane tickets, or shuttle services).
Complimentary medical services that are not covered in the cost of treatment, such as hospital visits, blood work, diagnostic imaging, and urine drug tests, are also tax deductible. So be sure to keep your receipts!
Below is a list of 10 common rehab-related expenses you can deduct if billed separately by your treatment provider. If these services are already bundled in your admission fee, then unfortunately you can’t double dip – sorry, guys.
- Offsite detox
- Pain management or specialty services
- Dental, vision, and physical exams
- Neurological tests like sleep studies
- Physical Therapy
- Pharmacy refills
- MRIs and CT scans
- Psychiatric or psychological consultations
- Legal fees to authorize treatment
- Smoking cessation programs
But not every expense is a tax-deductible medical expense. For instance, the amount of money you spent on controlled substances like marijuana, cocaine, or heroin during your addiction obviously falls into this category.
Additional things you can’t deduct during your stay in drug or alcohol rehab include:
- Childcare expenses
- Nonprescription drugs and supplements
- Insurance premiums
- Future medical expenses for services provided after the fiscal year (Hint: this is important for clients whose treatment occurs in two years – i.e. December 2019 to February 2020)
- Health Savings Accounts (HSA)
- Flexible Spending Arrangements (FSA)
- Medical Savings Accounts (MSA)
- Gym memberships
- Cosmetic surgery
If you’re still having trouble deciding what medical expenses are tax deductible, I encourage you to check out these IRS guidelines.
Are My Health Insurance Payments Tax Deductible?
Having health insurance is an important step in getting your stay in treatment partially or completely covered. We are aware of that at Stonegate Center, and as a result, we have gone in-network with several insurance providers in order to make drug rehab affordable for our patients.
So, how can your health insurance help cover the cost of addiction treatment? Besides limiting your out-of-pocket expenses at the time of admission, you may be entitled to some tax deductions when tax season rolls around. Check out these guidelines below to see if you can recoup some of your hard-earned cash.
If you are self-employed, you may be able to write-off those health insurance premiums you pay every month. But, make sure you’re not being simultaneously covered by your spouse’s insurance plan as that could throw a wrench in your plan!
Drum roll for our readers who bought health insurance off the exchange with their after-tax dollars… because you, too, are eligible for a tax deduction as long as you itemize these expenses in the Schedule A form listed above.
Unfortunately, the IRS stops granting relief for health insurance premiums right there. If you have health insurance through your employer, you cannot deduct these as medical expenses. Things get a little more complicated if your employer only pays part of these monthly premiums or is willing to foot the bill for your rehab costs through their Employee Assistance Program (EAP).
For those cases, ask a professional, or even Turbo Tax. They’ve done a good job of walking our patients through the process of recouping some of the expenses accrued after a stay at one of our residential facilities for substance abuse.
Calculate Your Drug Rehab Tax Savings
Now’s the fun part. After you’ve itemized your rehab-related medical expenses, it is time to calculate how much money you’ll save after going to treatment.
As of January 1st, 2019, taxpayers are allowed to deduct medical expenses that exceed 10% of their adjusted gross income (AGI). If you don’t know anything about finances, this blog by Turbo Tax should walk you through how to calculate your AGI. But essentially, you should subtract any deductions, IRA contributions, and student loan interest from your total income and – voila! – there’s your AGI.
Got it? Good. Let’s do some math.
If you have AGI of $80,000 and $10,000 in medical expenses (i.e. drug and alcohol addiction treatment), what’s your tax deduction?
If you answered $2,000, then you’re correct! 10% of $80,000 is $8,000. Therefore, according to the IRS guidelines, anything above $8,000 qualifies for a tax deduction. Subtract your $10,000 medical expense total from your $8,000 threshold, and you’ll get your allowable amount, which is $2,000.
With health insurance deductibles and out-of-pocket expenses for drug rehabs skyrocketing, this might be a good way to get some money back. Please note, any costs that insurance pays for or reimburses to treatment providers, is exempt from this requirement. In other words, if it didn’t come directly out of your pocket, then you can’t claim it on your taxes.
Reduce Drug Rehab Expenses by Utilizing Insurance
Although online shopping is becoming more and more prevalent, drug rehab costs aren’t often listed on the web – a practice that the Trump administration may change this year. Until then, it’s difficult to comparison shop for rehabs like you would on eBay or Amazon.
Because of this, I strongly encourage every patient to get their insurance verified by a treatment specialist prior to admission. This is called a verification of benefits (VOB) and will better help you estimate how much you’re directly responsible for. If you do not have health insurance to cover your cost of treatment, ask about self-pay options, financial hardship forms, and extended payment plans.
In sum, although tax deductions for addiction treatment services are beneficial, they are small in comparison to the amount that a typical commercial insurance provider will cover. Whereas a tax deduction may save you thousands of dollars in bills, a strong insurance provider could save you tens of thousands of dollars.
For more information on the intersection of insurance and addiction treatment, check out this blog by our Clinical Director.
John Eckelbarger is a Business Development Representative for Stonegate Center. With a BSA in Chemistry from the University of Texas at Austin, he has an interest in the neurobiology of addiction as well as the pharmacology of drugs. He hopes to bolster Stonegate Center’s status at the forefront of addiction medicine through bold, innovative content creation. He is currently pursuing his MBA in Finance from Texas Christian University.