Medical Expenses Deduction: Cross-Border Canada-US

Medical expenses are deductible in both Canada and the US, but the rules differ in ways that matter for cross-border filers. Canada provides a non-refundable tax credit for expenses above a threshold. The US provides an itemized deduction for expenses above 7.5% of AGI. The eligible expenses overlap but are not identical, and insurance from one country may not cover providers in the other, creating out-of-pocket costs that only one return can claim.

How does the Canadian medical expense credit work?

Canada’s medical expense tax credit is claimed on line 33200 of the T1. You add up eligible medical expenses for any 12-month period ending in the tax year, subtract the lesser of 3% of your net income or the threshold ($2,759 for 2024, indexed), and calculate a non-refundable credit at the lowest federal rate (15%) on the excess. Provincial credits add to the benefit, with their own thresholds and rates.

Eligible expenses include payments to doctors, dentists, hospitals, prescription drugs, medical devices, travel for medical care (if the care is not available locally), and health insurance premiums. The list at ITA 118.2(2) is specific: expenses must be on the list to qualify.

For a cross-border filer, medical expenses paid to US providers qualify for the Canadian credit if the expense type is on the ITA 118.2(2) list. A dental procedure performed in the US is an eligible expense for the Canadian credit, the same as one performed in Canada. The currency conversion (USD to CAD) uses the Bank of Canada rate on the date of payment.

How does the US medical expense deduction work?

The US medical expense deduction is claimed on Schedule A of Form 1040 (itemized deductions). You add up qualifying medical expenses, subtract 7.5% of your AGI, and deduct the excess. The deduction reduces taxable income, not tax directly (unlike the Canadian credit).

The 7.5% threshold is higher than Canada’s 3% threshold, so many taxpayers with moderate medical expenses get a Canadian benefit but no US benefit. The US deduction is also available only to taxpayers who itemize (rather than taking the standard deduction), which limits its reach further.

Eligible expenses include payments to doctors, dentists, hospitals, prescription drugs, medical devices, health insurance premiums (if not paid pre-tax through an employer plan), and long-term care. The IRS defines eligible expenses in Publication 502.

Medical expenses paid to Canadian providers qualify for the US deduction if the expense type is eligible under IRC 213. A prescription filled at a Canadian pharmacy is deductible on the US return.

Can I claim the same expense on both returns?

Yes, if the expense qualifies under both countries’ rules and has not been reimbursed by insurance. The same out-of-pocket medical expense can be claimed on both the Canadian T1 (as a medical expense credit) and the US Form 1040 (as an itemized deduction), because the two benefits operate independently. Neither country’s rules require you to reduce the claim by benefits received from the other country’s tax system.

However, insurance reimbursements reduce the eligible amount in both countries. If your employer’s health plan reimburses 80% of a $5,000 procedure, only the $1,000 out-of-pocket portion is eligible for both the Canadian credit and the US deduction.

What about health insurance premiums?

Canadian residents: provincial health insurance (OHIP, MSP, etc.) is funded through general taxation or employer premiums, and the premiums are not separately deductible (they are part of the tax system). Private supplemental insurance premiums (dental, vision, prescription drug plans) are eligible for the medical expense credit.

US residents: health insurance premiums paid with after-tax dollars are deductible on Schedule A. Premiums paid through an employer’s pre-tax plan (Section 125 cafeteria plan) are already excluded from income and cannot be deducted again. Marketplace (ACA) premiums may produce a premium tax credit instead.

For a cross-border filer who maintains coverage in both countries (for example, Canadian coverage during the departure year plus US coverage after arrival), both sets of premiums may be claimable on the respective returns.

What about the HSA?

A Health Savings Account (HSA) is a US tax-advantaged account for medical expenses. Contributions are deductible, growth is tax-free, and withdrawals for qualifying medical expenses are tax-free. Canada does not recognize the HSA: contributions made while a Canadian resident are not deductible on the Canadian return, and the CRA may tax the HSA’s investment growth annually as foreign trust income.

If you move from the US to Canada with an existing HSA, the account continues to exist, but you cannot make new contributions (you are no longer enrolled in a qualifying HDHP in the US). Withdrawals for medical expenses are still US-tax-free but are taxable in Canada (unless the expense was incurred while you were a US resident).

What about the move year?

The year of the move is typically the most expensive for medical costs. Coverage gaps occur: Canadian provincial health insurance may end on the departure date (or up to three months later, depending on the province), and US coverage may not start until the employer’s waiting period ends. During the gap, medical expenses are entirely out of pocket, which increases the potential deduction or credit on both returns.

The Canadian return for the move year covers the period of Canadian residency, and the medical expense credit applies to expenses incurred during any 12-month period ending in that year. The US return covers the period of US residency (or the full year if a full-year election is made), and the medical deduction applies to expenses paid during the tax year.

What should I do next?

Track all medical expenses with receipts, including the currency and date of payment. Separate expenses by who paid (you vs insurance), and check each expense against both countries’ eligible lists. In the move year, plan for the coverage gap and budget for out-of-pocket costs.

• HSA and moving to Canada, what happens to your HSA
• Cross-border tax return cost, medical expenses add to the return complexity
• Leaving Canada permanently: tax checklist, the departure-year timeline including health coverage
• Standard deduction for cross-border filers, when itemizing (required for medical deductions) beats the standard deduction

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.