What's the Difference Between the Medical Expense Deduction and an HSA?

Both the medical expense deduction and an HSA can help offset the tax impact of healthcare costs, but they work very differently. The medical expense deduction allows you to deduct out-of-pocket medical costs that exceed 7.5% of your adjusted gross income if you itemize — so on a $60,000 AGI, only costs above $4,500 would be deductible, and only if they exceed your standard deduction when added to other itemized deductions. An HSA lets you contribute pre-tax money (up to $4,150 for individuals and $8,300 for families in 2024) and withdraw it tax-free for any qualified medical expense, with no floor or percentage threshold. The HSA is generally far more accessible and valuable because you get the full benefit from the first dollar of medical spending rather than only on amounts above a high threshold. You can combine both strategies — pay expenses out of your HSA and then deduct any additional amounts above the 7.5% threshold — but this takes careful record-keeping.