What is the 7.5% floor?
While the tax laws allow you to deduct your medical and dental expenses, there is a limit to this deduction - the so-called 7.5% floor. You can only deduct those medical and dental expenses that exceed 7.5% of your adjusted gross income. This is best understood by the following example:
Assume you have calculated your medical and dental expenses for 2006 as totaling $4,000 and your adjusted gross income as $50,000. This means that $3,000 of your medical and dental expenses cannot be deducted (because $3,000 is 7.5% of your $50,000 adjusted gross income) and you can only include the remaining $1,000 in your itemized deductions.
The only time this 7.5% floor does not apply is to your health insurance premiums, if you are self-employed. In that situation, you can deduct 100% of your premiums.