3 Fitness Tax Breaks to Save You Money
Money Girl gives you tricks to cut your taxes while improving your health and getting fit.
A Money Girl podcast listener named John asks:
“After listening to your recent show about Obamacare, I want to know what tax breaks are available for living a healthy lifestyle. Is it possible to save money while getting fit?”
Getting fit is an important goal that improves your life in many ways. Feeling better and looking better can actually help you earn more. In this episode I’ll show you how to also save more money by using fitness-related tax breaks.
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Obesity is one of the most problematic public health concerns in the U.S. today. About 70% of adults and over 30% of children are either overweight or obese. They face an increased risk of developing a host of serious health problems, like hypertension, diabetes, and heart disease.
If you’re obese, statistics show that you’ll pay 42% more in medical costs than someone of normal weight. Plus, programs like Medicare and Medicaid spend about 10% more of our taxes to treat overweight patients. Minorities and those with low income, especially children from low-income families, suffer the most from the high cost of obesity.
See also: How to Save Money by Getting Fit
For these reasons, John’s question about financial incentives to encourage fitness is a really good one. Unfortunately, few proposals have been introduced to encourage healthier habits through tax breaks.
There are more health sticks than carrots, such as “sin taxes” and “fat taxes” on cigarettes, alcohol, and unhealthy food. These taxes are designed to make us avoid potentially harmful behavior in the first place.
However, here are 3 main ways that you can still use tax breaks to save money while adopting a healthier lifestyle:
When you itemize tax deductions, you can claim a variety of medical expenses that cut your taxes.
Savings Tip #1: Deduct Your Medical Expenses
When you itemize tax deductions (instead of taking the standard deduction for your tax filing status) you can claim a variety of medical expenses that cut your taxes. These include medical costs paid for yourself, your spouse, and dependents, including health insurance premiums—unless they’re already excluded from your taxable income by an employer.
Which Medical Expenses Are Tax Deductible?
Allowable medical deductions alleviate or prevent a physical or mental illness. They don’t include expenses meant to promote your general well-being or appearance, like vitamins, a gym membership, cosmetic surgery, or a trip to Maui.
However, some of the following allowable deductions may surprise you:
- acupuncture
- chiropractic care
- contact lenses
- treatment for drug addiction
- psychoanalysis
- weight loss programs (when recommended by a doctor to treat a medical condition such as obesity or hypertension)
- transportation to get medical care
Take a look at the full list of deductible expenses in IRS Publication 502, Medical and Dental Expenses.
How Much Is the Medical Tax Deduction?
For 2013, the medical deduction applies to the amount of allowable expenses that exceed 10% of your adjusted gross income (AGI). For example, let’s say your AGI is $50,000 and your medical expenses for the tax year are $6,000. You could deduct the amount over $5,000, or $1,000. If your medical expenses are less than 10% of your income, then you can’t deduct any of them.
If you or your spouse is 65 or older, you’re eligible for a bigger tax break. You can deduct medical expenses that exceed 7.5% of your adjusted gross income through 2016.
Savings Tip #2: Use a Medical Savings Account
Besides claiming medical deductions, you can also get a tax break for using different kinds of medical savings accounts. Health savings accounts (HSAs) and flexible savings arrangements (FSAs) are the most popular types.
A health savings account allows you to save for future medical expenses on a tax-free basis. In other words, you don’t have to pay tax on the contributions you make. You (or an employer) put money in an HSA and can spend it on medical expenses that aren’t covered by your health insurance, like your deductible and co-payments.
But there’s a catch. You can only contribute to an HSA when you have a certain kind of health insurance policy called a high-deductible health plan (HDHP). These policies have lower premiums because they come with a higher-than-normal deductible (the amount you have to pay before your benefits begin). You qualify for an HSA whether you pay for a high deductible plan on your own or get it through work.
A flexible spending arrangement allows you to be reimbursed for medical expenses on a tax-free basis. They’re usually funded through contributions made from your salary or from an employer that are excluded from your gross income.
Unlike an HSA, an FSA can only be established by an employer. This restriction excludes most self-employed individuals from being eligible for an FSA. Another major difference beween them is that FSAs are “use-it-or-lose-it” plans. You must empty your FSA every year, while funds in an HSA can roll over from year to year and accumulate indefinitely.
For more details on these medical savings accounts see IRS Publication 969opens PDF file , Health Savings Accounts and Other Tax-Favored Health Plansopens PDF file .
Savings Tip #3: Use Workplace Health Incentives
Many employers understand that healthy workers are good for the company’s bottom line. It’s not uncommon for large organizations to offer financial incentives for losing weight, walking a certain number of miles, completing online health counseling, or using an in-house gym. Typical rewards include gift cards, addtional employer contributions to your HSA, or even extra vacation time.
If you aren’t taking advantage of medical tax deductions, a medical savings account, or health incentives at work, find out what options are available. If you aren’t eligible for any health perks, remember that getting fit has its own rewards. Being healthier can help you accomplish more at work and save money by staying out of the doctor’s office and pharmacy in the first place.
Exercising on Swiss ball image courtesy of Shutterstock.
About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
