IRS Dental Implant Discount Plans: Tax Deductible Savings

Did you know that the IRS offers three different dental implant discount plans?

Your dental implant expenses are tax-deductible in the United States per IRS guidelines. Topic 502 clearly states that payments made for artificial teeth qualify.

However, it would help if you had a strategy to maximize the savings because each alternative has unique rules and opportunities to make treatment more affordable.

Schedule A tax deductions work best for full-mouth restorations and other extensive work because expenses must exceed two critical thresholds. Meanwhile, two pre-tax alternatives fit better with single-tooth implants because the IRS imposes annual contribution limits.

Thoughtful planning can cut costs by 22% to 33%, as illustrated below!

Schedule A Deductions for Full-Mouth Implants

Schedule A for full-mouth implants

Schedule A is best suited for full-mouth dental implant restorations or multiple teeth replacement in a single calendar year because it offers a lower percentage of savings on larger deductible expenditures.

You must two spending thresholds in a given tax year. Therefore, consolidating treatment into one twelve-month period maximizes your discount, as you will shortly see.

Itemized Deductions

First, the total of all itemized deductions must exceed the standard deduction for your dental implant expenses to yield any tax savings. Therefore, consolidating your spending into a single calendar year (January to December) produces the most significant discounts.

Dental implant payment plans allow you to complete all treatment within a tight time window if you lack the cash. The downstream borrowing costs might be tiny compared to the enormous upfront tax savings you unlock.  

2021 Standard DeductionItemized Deductions [1]

Single and married filing separately: $12,550

Charitable Donations

Head of household: $18,800

Mortgage Interest & PMI Premiums

Married filing jointly: $25,100

State & Local Property Taxes

 

Casualty and theft losses

 

Unreimbursed Medical & Dental Expenses above 7.5% of AGI

Medical & Dental Expenses

Your dental implants are tax-deductible only when you itemize, and your unreimbursed medical and dental expenses exceed 7.5% of your Adjusted Gross Income (AGI). Now you have a second reason to consolidate spending in a single calendar year.

Keep receipts and explanations of benefits and include every qualified expense to maximize your discounts in the calendar year you get replacement teeth.

MedicalDental

Annual Deductible

Individual insurance premiums

Co-insurance

Amounts above the annual maximum

Copayments

Charges above the allowed amount

Out-of-network balance billing

Other self-pay oral care

The $50,000 average cost of full-mouth restoration (upper and lower jaw) boosts many taxpayers above this second critical threshold while maximizing tax savings – provided you bunch the spending in a single year.

For example, take an overly simple illustration of a married couple with an AGI of $100,000 itemizing dental implant costs and no other medical and dental expenses. Compare the possible tax savings of consolidated versus phased treatment.

Full-Mouth 1 YearUpper-Jaw Year 1Lower-Jaw Year 2

Total Expense

$50,000

$25,000

$25,000

Above 7.5% of AGI ($7,500)

$46,250

$16,500

$16,500

Savings @ 22% Tax Bracket

$10,175

$3,630

$3,630

In this illustration, our couple saves more by consolidating spending into one year because they avoid a second 7.5% AGI hit. Plus, the bunched spending guarantees that itemizing will reduce their obligation.

Seniors on Medicare

Because the pre-taxing of payroll is unavailable to retired former workers, Schedule A deductions are the only avenue for seniors on Medicare to lower net dental implant costs.

Fortunately, Medicare premiums are deductible as unreimbursed medical and dental expenses, giving seniors a head start towards the 7.5% threshold each year. Consider how this works for our married couple (now over the age of 65) with a $100,000 AGI.

Medicare ComponentAnnual Premium
Part A (Hospital)$0
Part B (Medical)$1,782 *
Part D (Prescription Drugs)$0 *
Supplemental (Co-insurance)$1,800 **

As you can see, our older couple begins with an automatic $3,582 in unreimbursed medical and dental expenses each year, close to half the annual 7.5% AGI threshold before savings start – for those who itemize.

* Government rate in 2021 for a married couple earning less than $176,000
** National average figure for all supplemental policy designs

Pre-Tax Deductions for Single Tooth Implants

Pre-taxing single tooth implants

Patients needing a single tooth implant or who want to spread expensive dental work out over multiple years find that pre-tax deductions are a better fit than using Schedule A.

Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) offer a larger percentage of tax savings on smaller annual expenditures by reducing income subject to taxation.

  • First dollar tax savings
    • Standard deduction does not apply
    • 5% AGI threshold does not matter
  • Avoid paying FICA taxes
    • Employee share (7.65%)
    • Up to $148,100 in income
  • Subject to annual contribution limits

Flexible Spending Accounts

A Flexible Spending Account (FSA) can provide interest-free implant financing without a credit check while saving patients money through pre-tax payroll deductions. You can realize each of these benefits by following a simple formula.

Free Financing

An FSA can provide interest-free dental implant financing. Elect to fund your FSA during your employer’s annual open enrollment and schedule the first tooth implant procedure at the beginning of the plan year.

Your employer must reimburse qualifying expenses immediately. You then have up to 52 weeks to repay your employer via pre-tax payroll deductions without having to pay a dime in interest.

No Credit Check

Implant patients can use their FSA to pay for dental work with bad credit. Under IRS rules, if an employer offers the benefit to a class of employees, it must permit all employees in that category to participate.

Employers cannot pull a copy of your consumer credit report or consider your FICO or Vantage score. Just choose to make pre-tax contributions into the account.

Cost Reduction

Patients can use their FSA like a free government grant for dental implants – lowering their costs by up to $1,800 or more. Pre-tax payroll deductions have two huge advantages, as illustrated by our married couple with a $100,000 AGI.

  • $5,500 contributed pre-tax could save 33% or $1,800
    • FICA @ 7.65%
    • Federal @ 22%
    • State @ 4%
  • The couple saves $1,800 without meeting thresholds
    • $25,100 standard deduction
    • 5% of AGI ($7,500) medical and dental expenses

Annual Limits

Annual contribution limits mean that an FSA works best for patients who want a single dental implant or need to space treatment over several years to heal between procedure steps.

The Healthcare FSA annual contribution limits for 2021 are as follows.

  • Individual employee: $2,750
  • Married couple: $5,500

Health Savings Accounts

Patients can also take advantage of pre-tax payroll deductions by using their Health Savings Account (HSA) to pay for dental implants – even with a zero balance. An HSA is a tax-favored funding vehicle attached to a high-deductible health insurance policy.

As long as you establish an HSA account before incurring a qualifying expense, you can pay yourself back later using pre-tax dollars.[2]  Just wait until enough money accumulates in the account, and keep your receipts.

The 2021 annual contribution limits determine whether you want to use your HSA to pay for a single tooth, implant-supported bridge, etc. 

  • Individual: $3,600
  • Family: $7,200

Our married couple with a $100,000 AGI could save $2,376 ($7,200 X 33%) annually on dental implant expenses by using their HSA funds – without the need to itemize or meet the 7.5% medical and dental expense threshold.


Article Citations:

[1] IRS Schedule A Instructions

[2] Lively HSA Reimbursement Rules