Infertility treatment and In Vitro Fertilization (IVF) expenses are tax deductible via IRS Schedule A, and through a Healthcare Flexible Spending Account (FSA). These breaks represent two methods of defraying costs for families trying to conceive.
The two methods have different pros and cons. In addition, couples often start with more affordable infertility treatments, and then eventually graduate to IVF procedures, which are more expensive.
The amount you project to spend helps determine which vehicle works best.
- Strategies for smaller infertility treatment expenses
- Tactics for larger In Vitro Fertilization costs
In Vitro Fertilization Tax Deductible IRS
In Vitro Fertilization is tax deductible per IRS written guidelines. However, because of the significantly higher treatment expense, the strategies differ. Limited first dollar savings via your FSA give way to bigger overall savings through Schedule A. Planning is even more critical as couples do not know how many cycles they might need in order to conceive.
Financing and loans can boost tax savings. Consolidating expenses into a single year provides the best strategy for a happy tax return. Shared risk programs can also maximize your refund while credits sometimes apply.
IVF on Tax Returns
Your IVF tax return savings begin once they reach 10.0% of Adjusted Gross Income (AGI). For a couple with a $100,000 AGI the threshold translates to $10,000 of qualified medical expenses. The threshold would work as follows:
- Under $10,000 – zero savings
- Above $10,000 – write off savings vary by bracket (25%, 28%, 33%, 35%)
If this couple was undergoing treatments that cost $15,000, they would have $5,000 of IVF tax-deductible expenses.
IVF Tax Refund
The best way to get the biggest IVF tax refund possible is to consolidate deductions into a single year. By consolidating your expenses into one year, you only have to meet the deduction threshold once rather than multiple times. This maximizes your savings.
IVF risk sharing or refund programs provide a mechanism to consolidate expenses. There are many components to these programs outside the scope of this page. However, one feature has significant tax implications. Multiple cycle commitments and discounts incent couples to consolidate spending into a single year.
Be sure to consult your tax advisor.
IVF Tax Credit
The IVF tax credit is not yet the rule of the land. The Family Act of 2013 is a bill submitted to the house and senate during that year. The bill if passed will provide some first dollar savings for qualified expenses.
Adoption Tax Credit
At some point, families must decide between spending more on another cycle and moving on to adoption. Adoption expenses are not qualified for use with an FSA.
The reverse is true for adoption on your annual tax return. The adoption tax credit provides first dollar savings for qualified expenses up to $13,170.
Infertility Treatments Tax Deductible
Infertility treatment costs are tax-deductible medical expenses. Make the most of these deductions to reduce what you spend trying to conceive. You should know the pros and cons of the two primary vehicles, an FSA, and Schedule A, and make certain you include every possible qualified expense.
Flexible Spending Account
Flexible Spending Accounts (FSA) works best for couples who have access to the program at work and project to spend a modest amount on infertility treatments in any given year. Couples see larger tax savings when they plan to spend less than $5,000 annually.
An FSA allows you to use pretax dollars to pay for qualified medical expenses, which provides three big advantages over taking an infertility tax deduction on Schedule A.
- You can get an interest free infertility loan courtesy of your employer. Reimbursement is due when you incur qualified expenses, regardless of the amounts contributed to the account.
- Realize savings on the first dollar of qualified expenses, rather than only on those exceeding a certain threshold.
- Pretax elections also provide FICA savings of up to 7.65%.
Access and contribution limits are the biggest disadvantages of using your FSA for infertility tax savings.
- Not every couple has access. Not every employer offers the benefit, and you cannot take advantage as an individual as the program relies on pre-tax payroll contributions.
- The IRS also limits contributions to $2,500 annually per employee, which means that annual maximum for any couple is $5,000 – if both employers offer the benefit.
Schedule A Deductions
You can use IRS Schedule A to record your medical expenses and calculate the amount of your write off each year. It works best for couples with relatively large expenses (more than $5,000) relative to their income because the IRS sets a threshold before savings begin.
Disadvantages of Schedule A
The IRS places infertility tax deduction limits. They are not singling out couples trying to conceive. The same rules apply to everyone. However, treatment costs add up very quickly, so these limits affect infertile couples most frequently. The IRS limits your deductions in two ways.
- Your spending must exceed 10% of Adjusted Gross Income (AGI). You see tax savings only on spending above this threshold.
- The value of the deduction decreases as income climbs over certain amounts.
Advantages of Schedule A
Access is the primary advantage of using Schedule A versus using an FSA for taking advantage of tax deductions for qualified infertility expenses. Every couple can participate regardless of what benefits their employer chooses to offer.
Infertility Expenses Tax Deductible
Almost every infertility treatment expense provided by a certified medical practitioner or pharmacy is tax deductible on both your federal, state income tax returns and FSA. Keep all of your receipts in a safe place in case of an audit. Receipts are better than an explanation of benefits from your insurance carrier.
Remember that your infertility expenses must meet the IRS definition of a qualifying medical expense.
- Artificial insemination costs usually qualify except for home-based attempts.
- You must purchase fertility drugs through a licensed and qualified pharmacy. Buying another couple’s leftover medications does not work.
- Tubal ligation reversal and vasectomy reversal surgeries qualify when your doctor performs the surgery in a licensed medical center.
Deductible Travel Expenses
Do not overlook the cost of travel. Many couples travel long distances to find the most affordable prices for infertility treatments. This is what the IRS publishes regarding tax-deductible medical travel expenses.
“That includes the cost of public transportation or an ambulance as well as tolls and parking fees. If you use your car for medical travel, you can deduct the actual costs, including gas and oil. Instead of deducting the actual costs, you can deduct the standard mileage rate for medical travel, which is 23 cents per mile for 2012.”
“Lodging expenses (but not meals) while away from home to receive medical care in a hospital or a medical care facility related to a hospital, provided there was no significant element of personal pleasure, recreation, or vacation in the travel. Do not deduct more than $50 a night for each eligible person.”
Deducting Insurance Premiums
The best way to maximize your tax-deductible infertility deductions is to find other qualified medical expenses to include on Schedule A. Once a family hits the threshold there is more incentive to dig. Do not miss qualified insurance premium payments. Individual health insurance premiums purchased outside of work may qualify.
You may be able to add supplemental health insurance for infertility to your list of qualified expenses. However, proceed with caution. If you claim the insurance premium as a deduction, the benefit becomes taxable. Since these policies make benefits payments when mom delivers a baby the choice is clear:
- Take the insurance premium deduction if you were unable to conceive
- Do not take the insurance premium deduction if did conceive