funds for medical expenses

[JenMO]

person receives funds from church to help with medical expenses. does this amount need to be subtracted from expenses? Isn't that a gift and gifts aren't taxable but.. how should this be handled?

[John of PA]

It appears to me as a non reportalbe gift. It is not an official reimbursement for medical expense like one would get from an insuranc Co. or a Med Reimb plan, so I would say it's a gift.

[S T]

I agree with John PA, however, I believe I would take the "low end" and if truly the "Donee as in Church" was gracious enough to pay some medical bills, it is a gift, and not income to taxpayer - under $ 14,000 for year 2013, but I don't know in good conscious I as a taxpayer could represent my medical deductions on my tax return, without taking this into account. I believe I would net out my actual paid out expenses minus what was received as a gift.

I do realize a gift could be used for many items, as in food, housing, etc, so I guess the taxpayer needs to look to the gift and what it is earmarked for.

On another note, if the taxpayer needed assistance with medical bills, not necessarily sure that they would qualify for the Sched A medical deduction, or the overall Itemized Deduction to exceed Standard Deduction and there is a tax benefit - so could be a mute point

Only the taxpayer knows, and then you as a preparer would ask for the facts and circumstances and apply accordingly.

Just my thoughts,

Sandy

[JenMO]

TP had no insurance, and their church helps in these cases. TP was given money to help with medical expenses. Money was given directly to TP, church did not pay expenses directly. TP was able to pay rest of expense and it is enough to use Sch A. Still kinda gray.

[New York Enrolled Agent]

TP had no insurance, and their church helps in these cases. TP was given money to help with medical expenses. Money was given directly to TP, church did not pay expenses directly. TP was able to pay rest of expense and it is enough to use Sch A. Still kinda gray.

Why do you think it is "gray"? The taxpayer paid medical expenses - they are deductible under §213.

What difference is there if the money used for payment of medical expenses was from earnings or a gift from a family member or a gift from a church or from mega millions winnings and so on?

[JohnH]

I agree with NYEA. There's nothing gray about this at all. Who is to say they didn't take rent money to pay medical expenses and then the church financial support helped them with rent? Money loses its identity once it goes to the recipient, unless there is a requirement in the tax code to trace the funds. There is no such requirement in this situation.

They received a benevolence gift, and whatever motivated the gift is beyond the scope of the tax system.
They paid deductible medical expenses, and as long as they paid them they have a right to their tax deduction.

[ATSMAN]

Would the tax treatment be any different for the recipient if a family member gave them a gift of cash to pay bills, instead of the Church?

The taxpayer could still deduct as medical expenses on Sch A subject to the threshold.

I think the difference would be if a family member or Church directly pays the medical provider.

[John of PA]

Also keep in mind here that the tax law allows unlimited gifts (more than 14,000) for medical and education purposes.

[New York Enrolled Agent]

Also keep in mind here that the tax law allows unlimited gifts (more than 14,000) for medical and education purposes.

Be careful how you phrase that. Qualified transfers are not treated as gifts as per §2503(e). The regulations provide specific restrictions for the transfers to qualify.

Atsman writes: I think the difference would be if a family member or Church directly pays the medical provider.

The Tax Court has held that the donative intent of the transferor is the key. See Lang TCM 2010-286. The court used substance over form in making its determination in allowing the taxpayer a medical deduction.