REG · Federal Taxation of Individuals · 9 practice questions
Medical Expense Deduction: 7.5% AGI Floor and Reimbursements
Only unreimbursed qualified medical expenses above 7.5% of AGI are deductible on Schedule A. Below: a worked calculation that subtracts reimbursements before applying the floor, followed by free practice.
Try one first
Hint
Start with AGI, apply the current floor for qualified unreimbursed medical expenses, and deduct only the excess.
Answer B. Qualified unreimbursed medical expenses are deductible only to the extent they exceed 7.5% of AGI. Seven and one-half percent of $80,000 is $6,000, so Lana may deduct $9,500 − $6,000 = $3,500 as an itemized deduction on Schedule A.
Why not A: Tempting because medical expenses can be itemized, but incorrect: only the portion that exceeds the AGI floor is deductible, not the total amount paid.
Why not C: This reflects the common misremembered 10% AGI floor. Ten percent of $80,000 would be $8,000, leaving $1,500, but the applicable floor here is 7.5% of AGI, not 10%.
Why not D: While many personal expenses are nondeductible, qualified unreimbursed medical expenses are deductible to the extent they exceed the AGI floor (7.5% of AGI here).
Worked example
Morgan has AGI of $160,000 and itemizes deductions. During the year, Morgan paid an $18,000 qualifying hospital bill with after-tax dollars. Insurance reimbursed $4,000 of that bill in the same year. Morgan has no other medical expenses or reimbursements.
| 1 | Net qualified expenses$18,000 paid - $4,000 reimbursed | $14,000 |
| 2 | Calculate the AGI floor$160,000 × 7.5% | $12,000 |
| 3 | Deduct only the excess$14,000 - $12,000 | $2,000 |
Morgan may claim a $2,000 medical expense itemized deduction on Schedule A.
Check: $4,000 reimbursed + $12,000 floor = $16,000 not deductible; subtract that from $18,000 paid to get $2,000.
Key points
- Exclude expenses paid with pretax dollars, including Section 125 cafeteria plan premiums.
- Exclude cosmetic procedures performed solely to improve appearance, such as elective teeth whitening.
- If unreimbursed qualified expenses equal or fall below the AGI floor, the medical expense deduction is zero.
How the exam traps you
- Applying the floor to gross payments and ignoring insurance reimbursements. Subtract reimbursements first. Compare only unreimbursed qualified expenses with the floor.
- Deducting the full unreimbursed amount because the taxpayer itemizes. Itemizing does not remove the floor. Deduct only the excess.
- Using 10% of AGI or claiming the floor itself as the deduction. Use 7.5% of AGI. That amount is the nondeductible threshold, not the deduction.
Question 2
| Expense / Item | Amount |
|---|---|
| Doctor and hospital bills | $5,400 |
| Prescription drugs | $1,100 |
| Transportation costs to obtain medical treatment | $300 |
| Teeth whitening performed solely to improve appearance | $900 |
| Health insurance premiums not paid through an employer plan | $2,400 |
Hint
First determine which payments qualify as medical care under the tax rules, then apply the AGI-based threshold to that qualifying total.
Answer B. Qualifying medical expenses are doctor/hospital ($5,400), prescription drugs ($1,100), transportation for medical care ($300), and after-tax health insurance premiums ($2,400), totaling $9,200. Cosmetic teeth whitening is nondeductible. Subtract the 7.5% of AGI floor (0.075 × $80,000 = $6,000); deductible amount = $9,200 − $6,000 = $3,200.
Why not A: Tempting because it adds the $900 teeth-whitening cost to the qualifying total (10,100) and then subtracts the $6,000 floor to get $4,100. It fails because teeth whitening done only to improve appearance is a cosmetic expense and not deductible.
Why not C: Tempting because it correctly totals the qualifying payments ($9,200) but forgets the AGI-based limitation. It fails because medical expenses are deductible only to the extent they exceed 7.5% of AGI, so you must subtract $6,000 from $9,200.
Why not D: Tempting if a candidate incorrectly treats the $2,400 health insurance premiums as nondeductible; excluding premiums yields $5,400 + $1,100 + $300 = $6,800, and $6,800 − $6,000 = $800. It fails because after-tax health insurance premiums paid by the taxpayer are deductible medical expenses.
Question 3
Hint
For medical expense deductions, first reduce the expenses by reimbursements, then compare the remainder to the AGI percentage floor.
Answer D. Medical expenses are deductible only to the extent qualified unreimbursed expenses exceed 7.5% of AGI. Gomez's unreimbursed medical expenses are $9,000 ($11,000 − $2,000). The 7.5% floor is $6,000 ($80,000 × 7.5%), so the deductible amount is $9,000 − $6,000 = $3,000.
Why not A: This would result from using a 10% of AGI floor (10% of $80,000 = $8,000), which would leave only $1,000 deductible ($9,000 − $8,000). However, the applicable floor in this item is 7.5% of AGI.
Why not B: This equals the unreimbursed expenses ($11,000 − $2,000) but ignores the AGI floor. Only the portion of unreimbursed expenses above 7.5% of AGI is deductible, so Gomez cannot deduct the full $9,000.
Why not C: This comes from applying the 7.5% floor to the full $11,000 paid without first subtracting the $2,000 reimbursement. Reimbursements reduce the medical expenses before comparing to the AGI floor, so $5,000 is too high.
Question 4
Hint
First determine the unreimbursed medical expenses, then apply the AGI-based floor.
Answer D. Start with unreimbursed medical expenses: $12,000 paid less $2,000 reimbursed = $10,000. The deductible portion is the amount that exceeds 7.5% of AGI (7.5% of $80,000 = $6,000). Therefore, Riley may deduct $10,000 − $6,000 = $4,000.
Why not A: This equals the unreimbursed medical expenses before applying the AGI floor. It is tempting if a student subtracts the reimbursement but forgets that only the portion exceeding 7.5% of AGI is deductible.
Why not B: This equals 7.5% of AGI, which would be correct only if the student incorrectly applied the floor to the full $12,000 paid without first subtracting the $2,000 reimbursement. Reimbursed amounts are not part of the deductible unreimbursed expenses.
Why not C: This would result from using a 10% of AGI floor (10% of $80,000 = $8,000; $10,000 − $8,000 = $2,000). That reflects an outdated threshold; the applicable floor here is 7.5% of AGI.
Question 5
Hint
For medical expenses, do not deduct the full amount automatically. First apply the AGI-based floor.
Answer B. Medical expenses are deductible only to the extent they exceed 7.5% of AGI. Rivera's 7.5% floor is $6,000 (0.075 × $80,000), so the deductible amount is $10,000 − $6,000 = $4,000.
Why not A: This reflects an incorrect belief that personal medical expenses are never deductible. Because Rivera itemizes and the expenses are qualified and unreimbursed, the portion above the AGI floor is deductible.
Why not C: This comes from applying a 10% of AGI floor (10% × $80,000 = $8,000; $10,000 − $8,000 = $2,000). The correct floor in this scenario is 7.5% of AGI, so $2,000 is incorrect.
Why not D: This assumes the entire amount is deductible and ignores the AGI-based floor. Only the amount exceeding 7.5% of AGI is deductible, so the full $10,000 is not allowed.
Question 6
Hint
Decide which payments qualify as medical expenses, subtract any reimbursement, and only then apply the AGI limitation.
Answer A. Qualified medical expenses are $11,000 (accident-repair surgery) + $3,000 (prescribed medications) + $1,500 (after-tax health insurance premiums) = $15,500. Subtract the $2,000 insurance reimbursement to get $13,500; the AGI floor is 7.5% of $120,000 = $9,000, so the deductible amount is $13,500 − $9,000 = $4,500. Elective cosmetic surgery performed solely to improve appearance is not deductible.
Why not B: Tempting if the candidate uses a 10% AGI floor instead of 7.5%: 10% × $120,000 = $12,000, and $13,500 − $12,000 = $1,500. The item uses the 7.5% floor.
Why not C: Tempting if the candidate correctly excludes the cosmetic surgery but forgets to subtract the $2,000 insurance reimbursement: $15,500 − $9,000 = $6,500. Reimbursements reduce the amount of qualifying medical expenses.
Why not D: Tempting if the candidate treats the $4,000 elective cosmetic procedure as deductible and otherwise computes correctly: including the cosmetic expense gives $17,500 after the $2,000 reimbursement, and $17,500 − $9,000 = $8,500. Purely elective cosmetic surgery is not deductible.
Question 7
Hint
For medical expenses, first confirm that the taxpayer itemizes, then apply the AGI floor before deciding how much is deductible.
Answer B. Qualified unreimbursed medical expenses are deductible only to the extent they exceed 7.5% of AGI. Nora's AGI floor is $6,000 (7.5% of $80,000), so the deductible portion is $11,000 − $6,000 = $5,000. The question states she itemizes and the expenses are otherwise allowable, so $5,000 is the correct itemized deduction.
Why not A: Tempting because medical expenses are itemizable, but incorrect: only the portion above the AGI floor is deductible, not the entire amount.
Why not C: This reflects applying a 10% AGI floor (10% of $80,000 = $8,000, yielding $11,000 − $8,000 = $3,000). The keyed treatment uses the 7.5% floor, so $3,000 is wrong if 7.5% is the applicable rule.
Why not D: While personal living expenses are generally nondeductible, qualifying unreimbursed medical expenses are a specific exception and may be deducted to the extent they exceed the AGI threshold.
Question 8
Hint
First reduce the medical expenses by any insurance reimbursement, then apply the AGI-based floor.
Answer B. Medical expenses are deductible only to the extent they exceed 7.5% of AGI. Maya's net qualified medical expenses are $7,000 ($9,000 paid minus $2,000 reimbursement), and 7.5% of her $80,000 AGI is $6,000. Therefore, the deductible medical expense is $7,000 − $6,000 = $1,000.
Why not A: This reflects using a 10%‑of‑AGI floor instead of the 7.5% floor. A 10% floor on $80,000 would be $8,000, which would leave no deduction, but the applicable floor here is 7.5% of AGI.
Why not C: This comes from ignoring the $2,000 insurance reimbursement and subtracting 7.5% of AGI from the $9,000 gross payments. Reimbursed amounts are not deductible, so first reduce $9,000 by $2,000 to get $7,000 before applying the floor.
Why not D: This equals Maya's unreimbursed medical payments ($9,000 − $2,000) but incorrectly assumes all unreimbursed costs are deductible. Only the portion that exceeds 7.5% of AGI may be deducted.
Question 9
Hint
First reduce medical costs by any reimbursement, then apply the AGI percentage floor.
Answer A. Medical expenses are deductible only to the extent unreimbursed qualified medical expenses exceed 7.5% of AGI. Reed's unreimbursed medical expenses are $7,000 ($8,000 paid less $1,000 reimbursement). The 7.5% AGI floor is $4,500 ($60,000 × 7.5%), so the allowable deduction is $2,500.
Why not B: This is a tempting choice if a candidate uses a 10%-of-AGI floor instead of the correct 7.5% floor; with a 10% floor ($6,000) the deduction would be $1,000, but that is not the current rule used here.
Why not C: This results from subtracting the 7.5% floor from the total $8,000 paid without first netting the $1,000 reimbursement. Reimbursements must be netted from medical expenses before applying the AGI threshold.
Why not D: This reflects the mistake of treating all unreimbursed medical expenses as fully deductible. Only the portion of unreimbursed expenses that exceeds the AGI floor (7.5% of AGI) is deductible.
Common questions
How do I calculate the medical expense deduction on Schedule A?
Subtract same-year reimbursements from qualified medical expenses, then subtract 7.5% of AGI. The deduction is the remaining amount, but not less than zero.
Does a partial insurance reimbursement reduce my medical expense deduction?
Yes. Subtract the reimbursement even if insurance covered only part of the bill. Apply the AGI floor to the remaining qualified expenses.
Can I deduct health insurance premiums paid through a cafeteria plan?
Premiums paid through pretax salary reductions do not count as Schedule A medical expenses. After-tax premiums not deducted elsewhere may qualify, subject to the 7.5% AGI floor.
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