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Deducting Mental Health Services from Taxes?

7/24/2014
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. Read on to learn when and what could be deductible. This may get more complicated if you consider using a health savings plan to pay for services.

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.

Psychological Medical Care

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.

What Therapy Counts?

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. 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.

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. You may also want to learn more about Health Savings Accounts vs. Flexible Spending Accounts - check out the Official Fonthill Counseling Blog on HSA vs FSA - ?p=1250

Itemizing Required

You must itemize your taxes in order to claim your therapist sessions. 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. Make sure to coordinate with your mental health provider as well.
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