Medical Settlement?

[dan doshan]

Is there anything here. Client received a 30K settlement from a car accident from way back in 2004. The settlement showed around 2200 reimbursing Blue Cross, apparently for what they initially paid out for clients medical expenses, and another thousand or so paid on a few other medical bills still owed by client. Total attorney fees were around 10K. Bottom line, after all amounts paid out the client received a check for 14K.

Settlement was apparently for personal injury so nothing would appear to be taxable. However, do you think the client could use the 3200 or so she had deducted from her settlement proceeds as a medical expense.

[Koss]

Settlement

However, do you think the client could use the 3200 or so she had deducted from her settlement proceeds as a medical expense.

No, because she didn't pay those medical bills.

They were paid by the party that paid the settlement to her.

BMK

[dan doshan]

You're most likely correct. But didn't they pay out her settlement money. Are you saying that if she got the full check less the attorney fees and then she paid or repaid the insurance company or whoever for the medical expense she might then have a medical deduction. Or still no.

[JG EA]

You're most likely correct. But didn't they pay out her settlement money. Are you saying that if she got the full check less the attorney fees and then she paid or repaid the insurance company or whoever for the medical expense she might then have a medical deduction. Or still no.

Think of it like this: The money was not taxable as pre-tax insurance is not taxable. So, you can't count pre-tax insurance payments and you can't count this either. If she had gotten the money and paid medical bills it would be the same as getting pre-tax money and paying something. If you need to explain it to your client say she can count it as medical expense if she also puts it into income.

[Gretel]

Having dealt with my own case last year I think it all hinges on what the settlement was deemed to be and only the attorney can make this determination. In my case, some of the medical were pay by insurance, some were paid by me.

Medical expenses paid directly by insurance are out for medical deduction but medical expenses paid by will be used as medical expenses on my tax return and settlement (not through court) is still not taxable.

I have from my attorney in writing that we did not recover enough that the settlement I got would be considered to be for medical expenses or lost income.

[Burke]

I have from my attorney in writing that we did not recover enough that the settlement I got would be considered to be for medical expenses or lost income.

Interesting. How did he determine that? Was the settlement not broken down into segments as to what it was covering? Back wages or lost income are usually reported on a W-2 . Also, I am pretty sure the attorney's fees cannot be deducted since the settlement is tax free, correct?

[Gretel]

Interesting. How did he determine that? Was the settlement not broken down into segments as to what it was covering? Back wages or lost income are usually reported on a W-2 . Also, I am pretty sure the attorney's fees cannot be deducted since the settlement is tax free, correct?

The attorney had gathered cases and settlement amounts previously awarded in cases like mine. Since the insurance limit was far below what I could have gotten would I sue (which was not on my mind) he determined that the full amount was for damage.

And yes, no deduction for attorney fees.

[taxea]

Why did Blue Cross make the payments if the TP did not have coverage for the items BC paid? There is no pre-tax here for any reason. If BC took a reimbursement for funds they doled out and the reimbursement came from the settlement then the TP paid the medical expenses and it doesn't matter where he got the money. The settlement is not taxable unless it includes loss of wages and the medical is deductible is my opinion until someone can come up with a tax reg that says otherwise.

[dan doshan]

Think of it like this: The money was not taxable as pre-tax insurance is not taxable. So, you can't count pre-tax insurance payments and you can't count this either. If she had gotten the money and paid medical bills it would be the same as getting pre-tax money and paying something. If you need to explain it to your client say she can count it as medical expense if she also puts it into income.

Maybe but .. Say your company pays for your insurance and their insurance carrier does indeed pay a claim for say 10K. Then later for whatever reason the insurance company is able to weasel out of this and turns around and bills you for the 10K they spent. Would this not then be a deductible medical expense.

What if all your income was from tax exempt bonds and you paid medical expenses with this income?

[JG EA]

Slow news day

Maybe but .. Say your company pays for your insurance and their insurance carrier does indeed pay a claim for say 10K. Then later for whatever reason the insurance company is able to weasel out of this and turns around and bills you for the 10K they spent. Would this not then be a deductible medical expense.

What if all your income was from tax exempt bonds and you paid medical expenses with this income?

Well, let's see.

#1 Wouldn't this be money paid from after tax dollars?

#2. If all income was from tax-exempt bonds they probably wouldn't have to file. Or if they did have to file then their SS would be taxed and the payments would have come from taxed income. Or if they filed to be taxed by their state and itemized accordingly then would be taxed money.