Is Drug & Alcohol Rehab Tax Deductible? (When & How To Claim Rehab on Your Taxes)
Rehabilitation for substance abuse issues is sometimes tax-deductible depending on various factors. This page will cover whether alcohol and drug rehab is tax deductible, in which cases it’s tax deductible, and how you can best receive help for a substance use disorder.
Is Drug & Alcohol Rehab Tax Deductible?
If you’ve been diagnosed with a substance use disorder and have been seeking treatment, you may wonder whether your rehab expenses deductible. This is a valid question because tax deductions are a way to get reimbursed for any out-of-pocket costs you may have had to pay relating to things like healthcare. You can sometimes deduct the cost of alcohol and drug rehab services and help lower your tax burden. A few stipulations and factors affect whether this option will be right for you.
Medical expenses may include any aspect of your treatment for substance use, such as the costs of diagnosis, mitigation treatment or prevention, and medical services.2 Additionally, you’ll be able to deduct drug rehab costs for yourself or a dependent. A dependent could include your spouse, child, or other eligible dependents.1
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What Is a Tax Deduction and How Does It Work?
According to the IRS, a tax deduction can help you lower the amount of money in taxes that you owe to the government.3Tax deductions are divided into several categories, one being medical expenses.3
A tax deduction works by lowering the amount of your taxable income, so you end up owing less in taxes.3 For example, if you make $50,000 a year but have $8,000 in deductions, your taxable income will be $42,000. This means you will only be taxed on that amount as opposed to $50,000. Therefore, your tax liability will be lower. So, even if you had to pay several thousand for drug or alcohol rehab, if it saved you money on your taxes, it would be similar to getting the service at a reduced cost.
Tax deductions can add up to help individuals and families save substantially on their tax payments. In fact, you may even get money back from the IRS if you have minor dependents. Inpatient or outpatient drug rehab tax-deductible expenses can add up and provide a boost to your income.
When Is Rehab Tax Deductible?
There is one important stipulation when it comes to any drug rehab deductible medical expense you may have. The total amount of your medical expenses must be more than 7.5% of your adjusted gross income, and you can only deduct the amount that is over that amount.2 For example, if you make $50,000 a year, you need to have at least $3,750 in medical expenses. The amount over and above $3,750 is the amount you can deduct. If you pay $12,000 for drug rehab and other medical expenses, you can deduct $8,250 because that is the amount over $3,750.
Here is the formula:
- Amount you must have to claim medical expenses: income x 7.5% ($50,000 x 7.5% = $3,750).
- Amount you can deduct on your taxes: (deductions—$3,750) ($12,000-$3,750 = $8,250).
How Do I Deduct Taxes for Rehab?
To simplify your taxes, keep track of your expenses and deductions throughout the year, so you don’t have to hunt down receipts and transactions at the end of the year. You could create a spreadsheet at the beginning of the year to itemize your deductions. When it comes time to do your income taxes, gather your information together and proceed. You will use a Schedule A 1040 and put the proper amount on line 1.4
Frequently Asked Questions Regarding Taxes & Paying for Rehab
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- IRS. (2021). Topic No. 502 medical and dental expenses.
- IRS. (2020). Publication 502 (2020), medical and dental expenses.
- IRS. (2021). Credits and deductions for individuals.
- Department of the Treasury Internal Revenue Service. (2020). 2020 Instructions for Schedule A.