Question

Paul and Libby White (both are age 66) are married and together have AGI of $105,000 in 2018. They have two dependents and file a joint return. During the year, they paid $8,000 for medical insurance, $15,000 in doctor bills and hospital expenses, and $1,000 for prescribed medicine and drugs.

(A) In December 2018, the Whites received an insurance reimbursement of $3,500 for hospitalization expenses. Determine the deduction allowable for medical expenses paid during the year.

(B) Assume instead that the Whites received the $3,500 insurance reimbursement in February 2019. Determine the deduction allowable for medical expenses incurred in 2018.

(C) Assume that the Whites received the $3,500 insurance reimbursement in February 2019. Discuss whether the reimbursement will be included in their gross income for 2019.

Answer 1

Paul And Libby white - Married Filing Jointly - Both 66 years of age

Total Medical Expenses for itemize deuction = $24000(8000+15000+1000)-7.5/100*(105000)=$16125

A) If Whites take itemize deduction then Medical Reimbursement received will be reduced from the Current year deduction

Deduction Allowable for medical expenses = $16125-3500 = $12625

B) Since Reimbursemnet received in Feb 2019 will not be reduced in 2018 Deduction

Deduction Allowable for medical expenses = $16125

C) yes, $3500 reimbursement will be included in their gross income for 2019. In this case white has to incude $3,500 reimbursement in her gross income for 2019, because if she collected this in 2018 then their medical expenses deduction in last year would have been only $12,625 (calculated in part- A) instead of $16,125 (calculated in part- B)