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Wendy Reed
Wendy Reed, Enrolled Agent
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Experience:  15+ years tax preparation and tax advice.
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What is the NJ medical deduction percentage?

Customer Question

What percentage of medical expenses are tax deductible if you paid out of pocket? Are dental expenses tax deductible and if yes what percentage again? Does it depend on your income?

Submitted: 10 years ago.
Category: Tax
Expert:  Wendy Reed replied 10 years ago.

Medical expenses are limited to a certain percentage of your income. Since you live in NJ, there are slightly different rules for state taxes. In NJ, you can deduct your medical expenses (prescriptions, dental, and vision are included) that are above 2% of your New Jersey gross income. So if your medical expenses are $2,000, and your gross NJ income is $50,000, 2% of that is $1,000. Therefore, you can deduct 1,000 dollars as medical expenses. ($2,000 minus 2% of gross income). There is a worksheet in the NJ instruction booklet to compute this. Also, medical insurance at your job is usually pre-tax federal, but post-tax state, so that your medical premiums are usually deductible for NJ state purposes.

Regarding federal taxes, it is much harder to deduct medical expenses. The same types of medical expenses are deductible (dental, prescription, vision, insurance etc.) but, you can only deduct the amount that exceeds 7.5% of your federal adjusted gross income. Therefore, if your federal income is $50,000, you can only deduct the amount of medical expenses in excess of $3750. Your medical premiums are usually pre-tax federal, so if they are, you can't deduct them on your federal taxes. In addition, you must itemize deductions on federal taxes in order to deduct medical expenses. This means that you do not take the standard deduction for your filing status. Generally, most people who don't own a house don't itemize, because their deductions are usually lower than the standard deduction. On federal tax form, you take whichever is better for you, the standard or itemized deductions.

In 2006, for married filing jointly, your standard deduction is $10,300. If all of your itemized deductions are greater than this, you should itemize. (To see what itemized deductions are, you can look at Form 1040, Schedule A, and instructions)

In doing tax returns, most of my clients can deduct a small amount of their medical expenses on their NJ return, but don't have enough expenses to make it worthwhile on their federal return. It is always a good practice to keep receipts and a record of medical expenses for taxes. In addition, medical mileage (going to and from doctor, pharmacy, etc.) is deductible at the rate of 18 cents per mile in 2006.

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