What a Record of a Medical Payment Has to Name

Answer first: four facts about every payment, and an itemized invoice on request

The medical expense regulation states the baseline in one sentence. In connection with claims for deductions under the medical expense section, the taxpayer shall furnish the name and address of each person to whom payment for medical expenses was made, and the amount and date of the payment in each case. Where payment was made in kind, that fact shall be so reflected.

So the minimum record is four facts per payment: payee name, payee address, amount, and date.

The second sentence goes considerably further, and it is the one that describes an itemized statement. Claims for deductions must be substantiated, when requested, by a statement or itemized invoice from the individual or entity to which payment for medical expenses was made, showing the nature of the service rendered and to or for whom it was rendered; the nature of any other item of expense, for whom it was incurred and for what specific purpose; the amount paid for it and the date of that payment; and such other information as may be deemed necessary.

Read that list against a card statement or a bank statement and the gap is obvious. Those documents carry a payee name, an amount and a date. They do not carry the nature of the service rendered, they do not carry to or for whom it was rendered, and they do not carry the specific purpose of any other item of expense.

The regulation's construction also identifies who is expected to produce the missing part. The statement or itemized invoice comes from the individual or entity to which payment was made — that is, from the seller or provider, not from the bank.

The general recordkeeping duty behind it

The statute states the duty in the broadest possible terms. Every person liable for any tax imposed by the title, or for the collection of it, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. It adds that whenever necessary in the Secretary's judgment, any person may be required, by notice or by regulations, to make returns, render statements or keep records sufficient to show whether or not that person is liable for tax.

The implementing regulation supplies the standard. Any person subject to income tax, or any person required to file a return of information with respect to income, shall keep such permanent books of account or records, including inventories, as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by that person in any return.

Sufficient to establish is the operative phrase, and it is a functional test rather than a list. The medical expense regulation's specific list is what the general standard looks like once it is applied to this particular deduction.

There is a separate rule for individuals whose gross income comes from wages, salaries or similar compensation for personal services. Those individuals are required, with respect to that income, to keep such records as will enable the correct amount of income subject to tax to be determined, and it is not necessary that they keep the books of account or records described in the general paragraph. That relaxation is about establishing income, not about substantiating a deduction.

How long the record has to survive

The regulation does not state a number of years. It states a condition, and the condition can outlast any fixed period.

The books or records required shall be kept at all times available for inspection by authorized officers or employees, and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law.

So long as the contents may become material is a moving standard. It attaches to the significance of the record rather than to the age of the transaction, which is why a document connected to a position that carries forward can matter for longer than one connected to a transaction that closed.

The same regulation preserves an override. Any person may be required, by notice served on that person, to make returns, render statements, or keep such specific records as will enable a determination of whether that person is liable for tax. A specific direction can therefore add to what the general standard requires.

One more provision worth knowing: the general regulation also imposes recordkeeping on exempt organizations, requiring permanent books of account or records sufficient to show specifically the items of gross income, receipts and disbursements, in addition to what is required with respect to unrelated business income.

The date on the record is not always the date money left the account

A record is only useful if it puts the payment in the right year, and the rule for which year a payment belongs to is not the same as the rule for when the money moved.

The medical expense regulation states the general position. A deduction is allowable only with respect to medical expenses actually paid during the taxable year, regardless of when the incident or event that occasioned the expenses occurred and regardless of the method of accounting employed. Expenses incurred but not paid during the year do not produce a deduction for that year.

The publication supplies two payment-instrument rules that matter for a purchase made online. If a credit card is used, medical expenses charged to the credit card are included in the year the charge is made, not when the amount charged is actually paid. And if medical expenses are paid by check, the day the check is mailed or delivered is generally the date of payment.

The consequence for a record is concrete. A charge made in one year and paid off in the next belongs, under that statement, to the year of the charge. The card statement showing the payment of the balance is not the document that establishes the year.

The publication also states the whose-expenses rule that a record has to support: expenses may generally be included for the taxpayer and for someone who was the taxpayer's spouse or dependent either when the services were provided or when the taxpayer paid for them. The regulation states the same two-moment test.

And it addresses expenses connected with a decedent. The publication states that where medical expenses were paid for a deceased spouse or dependent, they are included as medical expenses in the year paid, whether paid before or after the decedent's death. The statute carries its own decedent rule, treating expenses for the medical care of a taxpayer that are paid out of the estate within the one-year period beginning the day after death as paid by the taxpayer at the time incurred, subject to a stated limitation and waiver procedure.

Limits of these record requirements

Two absences are worth stating rather than filling in.

This explanation focuses on the cited rules for substantiating a medical-expense claim. It is not a complete guide to IRS recordkeeping, return preparation or every agency publication that may apply.

The regulation likewise does not prescribe a form for a statement or itemized invoice, does not require any particular seller to issue one unprompted, and does not say who bears the cost of obtaining one. It says what such a document must show when substantiation is requested.

One further limit deserves emphasis. The medical expense regulation's substantiation paragraph is a rule about supporting a claim. It is not a rule requiring a seller to itemize a bill, and nothing in the sections cited here imposes an itemization duty on a seller of health services as a matter of general law. What it does is describe the document that would satisfy a request, which is a practical answer to what to ask a seller for.

Finally, the substantiation rule interacts with the reimbursement rule. Because the deduction is limited to expenses not compensated for by insurance or otherwise, and because a reimbursement received in a later year is brought into income to the extent it is attributable to a deduction allowed in a prior year, the record that matters is not only the payment record but the record of what came back and when.