Publication 502 |
2000 Tax Year |
How Do You Treat Reimbursements?
You can deduct as medical expenses only those amounts paid during
the taxable year for which you received no insurance or other
reimbursement.
Insurance Reimbursement
You must reduce your total medical expenses for the year by all
reimbursements for medical expenses that you receive from insurance or
other sources during the year. This includes payments from Medicare.
Generally, you do not reduce medical expenses by payments you
receive for:
- Permanent loss or loss of use of a member or function of the
body (loss of limb, sight, hearing, etc.) or disfigurement that is
based on the nature of the injury without regard to the amount of time
lost from work,
- Loss of earnings, or
- Damages for personal injury or sickness.
You must, however, reduce your medical expenses by any part of
these payments that is designated for medical costs. See How Do
You Figure Your Deduction, later.
What If Your Insurance Reimbursement Is More Than Your
Medical Expenses?
If you are reimbursed more than your medical expenses, you may have
to include the excess in income.
Premiums paid by you.
If you pay the entire premium for your medical insurance or all the
costs of a plan similar to medical insurance, and your insurance
payments or other reimbursements are more than your total medical
expenses for the year, you have excess reimbursement.
Generally, you do not include the excess reimbursement in your gross
income. However, gross income does include total payments in excess of
the per diem limit for qualified long-term care insurance. See
Periodic Payments Not Taxed, under What Medical
Expenses Are Deductible, earlier, for the per diem amounts.
Figure 1. Is Your Excess Medical Reimbursement Taxable?
Premiums paid by you and your employer.
If both you and your employer contribute to your medical insurance
plan and your employer's contributions are not included in your gross
income, you must include in your gross income the part of your excess
reimbursement that is from your employer's contribution.
Example.
You are covered by your employer's medical insurance policy. The
annual premium is $2,000. Your employer pays $600 of that amount and
the balance of $1,400 is taken out of your wages. The part of any
excess reimbursement you receive under the policy that is from your
employer's contributions is figured like this:
Total annual cost of policy |
$2,000 |
Amount paid by employer |
600 |
Employer's contribution in relation to the total
annual cost of the policy
($600 x $2,000) |
30% |
You must include in your gross income 30% of any excess
reimbursement you received for medical expenses under the policy.
Premiums paid by your employer.
If your employer or your former employer pays the total cost of
your medical insurance plan and your employer's contributions are not
included in your income, you must report all of your excess
reimbursement as other income.
More than one policy.
If you are covered under more than one policy, the costs of which
are paid by both you and your employer, you must first divide the
medical expense among the policies to figure the excess reimbursement
from each policy. Then divide the policy costs to figure the part of
any excess reimbursement that is from your employer's contribution.
Example.
You are covered by your employer's health insurance policy. The
annual premium is $1,200. Your employer pays $300, and the balance of
$900 is deducted from your wages. You also paid the entire premium
($250) for a personal health insurance policy.
During the year, you paid medical expenses of $3,600. In the same
year, you were reimbursed $2,500 under your employer's policy and
$1,500 under your personal policy.
You figure the part of the excess reimbursement that is from your
employer's contribution like this:
Step 1. |
Reimbursement from employer's policy |
$2,500 |
Reimbursement from your policy |
1,500 |
Total reimbursement |
$4,000 |
Amount of medical expenses from your policy
[($1,500 x $4,000) x $3,600 total medical
expenses] |
$1,350 |
Amount of medical expenses from your employer's
policy [($2,500 x $4,000) x $3,600 total medical
expenses] |
2,250 |
Total medical expenses |
$3,600 |
Excess reimbursement from your employer's
policy ($2,500 - $2,250) |
$250 |
Step 2. |
Because both you and your employer contributed to the
cost of this policy, you must divide the cost to determine the excess
reimbursement from your employer's contribution. |
Employer's contribution in relation to the
annual cost of the policy
($300 x $1,200) |
25% |
Amount to report as other income on line
21, Form 1040 (25% x $250) |
$62.50 |
What If You Receive Insurance Reimbursement in a Later Year?
If you are reimbursed in a later year for medical expenses you
deducted in an earlier year, you must report the reimbursement as
income up to the amount you previously deducted as medical expenses.
However, do not report as income the amount of reimbursement you
received up to the amount of your medical deductions that did not
reduce your tax for the earlier year.
Example.
You are single. Your adjusted gross income last year was $20,000.
During that year you paid medical insurance premiums of $500 and other
medical expenses of $1,900. You deducted $900, figured like this:
Step 1. |
Medical expenses |
$1,900 |
Insurance premiums |
500 |
Total |
$2,400 |
Minus 7.5% (.075) of adjusted gross income |
1,500 |
Total medical expense deduction |
$900 |
Step 2. |
Last year, your itemized deductions, including
medical expenses, were $5,100. This year, you collected $600 from your
insurance policy for part of last year's medical expenses. If you had
collected it last year, your deduction for medical expenses would have
been only $300, figured like this: |
Medical expenses |
$1,900 |
Insurance premiums |
500 |
Total |
$2,400 |
Minus: insurance payments |
600 |
Balance |
$1,800 |
Minus: 7.5% (.075) of adjusted gross income |
1,500 |
Total medical expense deduction |
$300 |
Step 3. |
Your $900 medical expense deduction last year reduced
your income tax in that year. You must include the $600 of insurance
reimbursement in income this year. Report the $600 on line 21 of Form
1040. |
For more information about the recovery of an amount that you
claimed as an itemized deduction in an earlier year, see
Recoveries in Publication 525.
What If You Are Reimbursed for Medical Expenses You Did Not
Deduct?
If you did not deduct a medical expense in the year you paid it
because your medical expenses were not more than 7.5% of your adjusted
gross income, or because you did not itemize deductions, do not
include in income the reimbursement for this expense that you receive
in a later year. However, if the reimbursement is more than the
expense, see What If Your Insurance Reimbursement Is More Than
Your Medical Expenses, earlier.
Example.
Last year, you had $500 of medical expenses. You cannot deduct the
$500 because it is less than 7.5% of your adjusted gross income. If,
in a later year, you are reimbursed for any of the $500 of medical
expenses, you do not include that amount in your gross income.
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