A sudden illness or accident can bring costly medical bills—and stress. While you can’t predict a health crisis, you can prepare financially to ease the burden and save on taxes. As part of our September “Being Prepared” series, we’re sharing simple tax strategies to help you manage medical costs without breaking the bank.
Tax-Smart Tools for Medical Emergencies
Here are three ways to plan ahead and minimize taxes during a health crisis:
- Save with a Health Savings Account (HSA)
If you have a high-deductible health plan, an HSA is like a tax-free piggy bank for medical costs.- Contributions lower your taxable income
- Earnings grow tax-free
- Withdrawals for medical expenses are tax-free
Tax Tip: HSA funds never expire, making them a great long-term safety net
- Use Flexible Spending Accounts (FSAs) Wisely
FSAs allow you to set aside pre-tax dollars to pay medical costs. Unlike HSAs, FSAs are “use-it-or-lose-it”, so you must spend the money by year-end.
Tax Tip: Check your FSA plan for rollover or grace period options to avoid losing funds. FSAs work best for planned expenses, not sudden emergencies.
- Understanding the Medical Expense Deduction
If your out-of-pocket medical costs (like doctor bills or prescriptions) exceed 7.5% of your income and you itemize, you may be able to deduct the extra amount on your tax return.
Tax Tip: Save receipts for doctor visits, prescriptions, medical travel, and insurance premiums (if not paid pre-tax).
Tax Expenses as they Occur
Simplify the process of gathering your tax deductions by keeping your records organized. Use a simple spreadsheet or an app to log medical expenses as they happen. Store receipts in a single folder or digital file for easy access.
Tax Tip: Review your expenses monthly to see if you qualify for deductions.