Taxmap/pubs/p502-006.htm#TXMP26f95dfd
How Do You Treat Reimbursements?

Taxmap/pubs/p502-006.htm#TXMP2460643a 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 $230 a day ($84,180 for 2004) for qualified long-term care services.

Taxmap/pubs/p502-006.htm#TXMP0ff14147 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.

You can figure the amount of the excess reimbursement you must include in gross income using Worksheet B. Taxmap/pubs/p502-006.htm#w15002q03

Worksheet B.   Excess Reimbursement Includible in Income When You Have Only One Policy Instructions: Use this worksheet to figure the amount of excess reimbursement you must include in income when both you and your employer contributed to your medical insurance and your employer's contributions are not included in your gross income. 1. Enter the amount contributed to your medical insurance for the year by your employer 1.        2. Enter the total annual cost of the policy 2.        3. Divide line 1 by line 2 3.        4. Enter the amount of excess reimbursement 4.        5. Multiply line 3 by line 4. This is the amount of the excess reimburse-ment you must include as other income on Form 1040, line 21 5.

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Example.

You are covered by your employer's medical insurance policy. The annual premium is $2,000. Your employer pays $600 of that amount, which is not included in your gross income, and the balance of $1,400 is taken out of your wages. You receive $500 excess reimbursement for your medical expenses. The part of the excess reimbursement you receive under the policy that is from your employer's contributions is figured as follows.

Taxmap/pubs/p502-006.htm#w15002q04

Worksheet B.   Excess Reimbursement Includible in Income When You Have Only One Policy - Illustrated Instructions: Use this worksheet to figure the amount of excess reimbursement you must include in income when both you and your employer contributed to your medical insurance and your employer's contributions are not included in your gross income. 1. Enter the amount contributed to your medical insurance for the year by your employer 1. 600 2. Enter the total annual cost of the policy 2. 2,000 3. Divide line 1 by line 2 3. .30 4. Enter the amount of excess reimbursement 4. 500 5. Multiply line 3 by line 4. This is the amount of the excess reimburse- ment you must include as other income on Form 1040, line 21 5. 150

You must include in your gross income 30% (.30) of $500, or $150, of the excess reimbursement you received for medical expenses under the policy.

Taxmap/pubs/p502-006.htm#TXMP0f5bf62d 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.

Taxmap/pubs/p502-006.htm#TXMP6896a645 More than one policy.

If you are covered under more than one policy, the cost of at least one of which is paid by both you and your employer, you must first divide the medical expenses 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. Any excess reimbursement that is due to your employer's contributions is includible in your income.

You can figure the part of the excess reimbursement that is from your employer's contribution by using Worksheet C. Use Worksheet C only if both you and your employer paid part of the cost of at least one policy. If you had more than one policy, but you did not share in the cost of at least one policy, do not use Worksheet C.

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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 $2,400 under your employer's policy and $1,600 under your own personal policy. The amount you must report as other income is figured as follows.

Taxmap/pubs/p502-006.htm#TXMP27f643fd What If You Receive Insurance Reimbursement in a Later Year?

Insurance Reimbursement

If you are reimbursed in a later year for medical expenses you deducted in an earlier year, you generally must report the reimbursement as income up to the amount you previously deducted as medical expenses.

However, you 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.

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, Taxable and Nontaxable Income.

Taxmap/pubs/p502-006.htm#TXMP3e173ff4 What If You Are Reimbursed for Medical Expenses You Did Not Deduct?

Dental and Medical Expenses

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 the reimbursement, up to the amount of the expense, in income. However, if the reimbursement is more than the expense, see What If Your Insurance Reimbursement Is More Than Your Medical Expenses, earlier.

Taxmap/pubs/p502-006.htm#TXMP4f98f577
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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