Most people see a psychotherapist/counselor for the mental benefits of having someone to talk through certain life issues like depression, anxiety or substance abuse. What many people do not realize is that seeing a therapist might also have tax benefits. Most mental health appointments are deductible, but the deduction may not actually help you on your income taxes, depending on your financial situation.
We are often asked about whether we accept insurance for our mental health and family services. Less frequently, though, we are asked about the tax implications of mental health services.
To start the conversation, we put together a quick overview of what, if anything, can be deducted from your taxes.
Read on to learn when and what could be deductible. This may get more complicated if you consider using a health savings plan or flexible spending account to pay for services.
1. Find those Qualifying Expenses
Only medical expenses that are for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.” Your therapist appointments are deductible as a medical expense, according to IRS Publication 502, but only to the extent it is for medical care. You can also include the cost of therapist appointments for your spouse or your dependents, if applicable.
Below is a partial list directly from the IRS site (we took the liberty of underlining some of the more relevant items):
- Air conditioner necessary for relief from allergies or other respiratory problems (less any increase in the value of your home resulting from installation of air conditioning)
- Alcoholism treatment, including inpatient treatment, meals and lodging at a therapeutic center for alcohol addiction
- Artificial limbs
- Artificial teeth
- Birth control pills prescribed by a doctor
- Braille books and magazines used by a visually-impaired person
- A clarinet and lessons to treat the improper alignment of a child’s upper and lower teeth
- Contact lenses, including equipment and materials for using contacts
- Cosmetic surgery, if it’s necessary to improve a deformity related to a congenital abnormality, accident or disease
- Diet, special. When prescribed by a doctor, you can deduct the extra cost of purchasing special food to alleviate a specific medical condition
- Doctor or physician expenses
- Drug addiction treatment, including in-patient treatment, meals and lodging at a therapeutic center for drug addiction
- Elastic hosiery to treat blood circulation problems
- Exercise program if a doctor has recommended it as treatment for a specific condition
- Extra rent or utilities for a larger apartment required in order to provide space for a nurse/attendant
- Eye surgery, such as Lasik or a similar procedure, when it is not for cosmetic purposes only
- Guide dog or other animal used by a visually-impaired, hearing-impaired or otherwise physically disabled person
- Hospital care
- Household help for nursing care services only
- Insurance premiums for medical care coverage
- Laboratory fees
- Lead-based paint removal, including the cost of removing lead-based paints from surfaces when a child has lead poisoning or was previously diagnosed with lead poisoning. (Does not include the cost of repainting.)
- Legal fees paid to authorize treatment for mental illness
- Lifetime care advance payments
- Lodging expenses while away from home to receive medical care in a hospital or medical facility
- Long-term care insurance and long-term care expenses (there are limitations to what you can deduct)
- Mattresses and boards bought specifically to alleviate an arthritic condition
- Medical aids, including wheelchairs, hearing aids and batteries, eyeglasses, contact lenses, crutches, braces and guide dogs (and their care)
- Medical conference admission costs and travel expenses for a chronically ill person or a parent of a chronically ill child to learn about new medical treatments. (But not the cost of meals and lodging while attending the conference)
- Medicines and drugs
- Nursing care
- Nursing home expenses, including the entire cost of medical care, plus meals and lodging if the main reason for being in the home is to obtain medical care
- Oxygen and oxygen equipment
- Reclining chair bought on a doctor’s advice by a person with a cardiac condition
- Special education; tuition for sending a mentally impaired or physically disabled person to a special school that has resources to relieve the disability
- Smoking cessation programs (does not have to be recommended by a physician)
- Swimming (the cost of therapeutic swimming prescribed by a physician)
- Telephone (the cost and repair of special telephone equipment for a hearing-impaired person)
- Television (the cost of equipment used to display the audio part of a TV program for hearing-impaired persons)
- Transplant of an organ (but not hair transplants)
- Transportation costs for obtaining medical care
- Travel expenses for parents visiting their child in a special school for children with drug problems, where the visits are part of the medical treatment
- Weight loss program, if it is recommended by a doctor to treat a specific medical condition or to cure any specific ailment or disease
- Whirlpool baths prescribed by a doctor
- Wig for the mental health of a patient who has lost his or her hair due to a disease
- X-ray services
You may also want to ask your tax professional how to also list expenses related to placing and working with therapeutic boarding school, education consultant, therapeutic transportation services, case manager, residential treatment center and inpatient hospitalization for any of your children that you listed as dependents and needed such care.
2. What Therapy Counts (HINT: Not everything)?
The therapist’s treatment must be related to treating a physical or mental issue. For example, the IRS ruled that marital counseling to improve the marital relationship was not deductible as a medical expense since it was not related to a mental or physical defect (…which is why you should work with your therapist during the intake session to determine if you really need “marriage counseling” or individual counseling where you occasionally bring in your spouse to help with your distress). However, in other rulings, the IRS has held that the cost of psychiatric treatment for sexual inadequacy and incompatibility was closely related enough to a medical or physical defect that those costs could be deducted. This gray area comes up often which is why you should consult your tax professional AND therapist. Other types of therapy or intervention often over looked include:
- Individual and Group Counseling provided at Therapeutic Boarding School, Hospital or Residential Treatment Center
- Intake Sessions
- Psychiatrist visits/consults
- Psychological testing
- Therapeutic transportation service
- Case manager or education consultant
- Parenting assessment
- Drug testing
4. Medical Deduction Limitations
Just because a therapist’s appointment qualifies as a medical expense doesn’t mean you will actually be able get credit for it on your tax return. In 2012, you can only deduct medical expenses that exceed 7.5 percent of your adjusted gross income. For future years, the floor goes up to 10 percent. For example, if your AGI is $51,000, using the 10 percent floor, you’re only able to deduct your medical costs that exceed $5,100. Unless you’ve got a very expensive therapist, you’re probably going to need some other medical expenses to be able to take any deduction.
5. Itemizing Required
If you take the standard deduction, you are out of luck. You must itemize your taxes in order to claim your therapist sessions (and any associated costs). If you can only deduct a few hundred dollars or so after accounting for the AGI floor, you might not benefit if you give up your standard deduction to itemize. However, if you were already planning to itemize because of other itemized deductions, such as the mortgage interest deduction or charitable contributions, any medical expenses can also be deducted without further cost.
Don’t rely on this blog post for tax decisions. Consult your tax professional.