Does out of pocket payments for counseling count as a medical expense?

It depends.  According to IRS Publication 502, which defines which medical expenses are eligible for deduction on a personal income tax return, medical care expenses are defined as expenses that alleviate or prevent a physical or mental illness or disability. These expenses may include services rendered by medical professionals, the cost of medical supplies and hospitalization costs. Your deduction may include the cost of counseling that you pay for yourself, your spouse or your dependents.

The IRS allows you to deduct medical expenses associated with psychiatric care, including psychoanalysis. You also can deduct expenses related to treatment by a psychologist. Some of the mental health and counseling services that are deductible include alcoholism and drug addiction treatment and smoking cessation programs.

Treatment that doesn’t alleviate or prevent a specific condition, but is instead aimed at your general mental health, is not eligible. Of course, any treatment paid by your insurance cannot be claimed, but you can claim the deductibles you paid, provided they meet the requirements.

You can only deduct medical expenses when you itemized deductions and file Schedule A.  If you itemize, you can only deduct medical and dental expenses in excess of 7.5 percent of your adjusted gross income. For example, if you had an adjusted gross income of $50,000 and had eligible medical expenses of $6,000, you are allowed to deduct $2,250, which is the remainder when 7.5 percent of $50,000, or $3750, is subtracted from $6,000.