Insurance Settlement-Attorney Paid Medical Bills

[zeros]

Received an email from one of my clients. She says she settled with an insurance company. With that money, the lawyer paid some of her medical bills. No medical deduction, correct? Don't have any other details, I am assuming it was an automobile accident.

[mastertaxguy]

More information is needed. Attorney will (should) supply an accounting of the total recovery, attorney fee and expenses, and disbursements. Wait for that.

[Gretel]

Yes, I agree. I had an automobile accident myself some years ago. Attorney told me he was not able to recover enough for damages and medical bills and all funds were for damages. Hence, the full amount of the medical bills paid went on my Schedule A.

[zeros]

Not Deductible?

Yes, I agree. I had an automobile accident myself some years ago. Attorney told me he was not able to recover enough for damages and medical bills and all funds were for damages. Hence, the full amount of the medical bills paid went on my Schedule A.

I'm thinking no money out of her pocket, paid by insurance thru the attorney. No deduction?

[ATSMAN]

I would agree with that because had the insurance company paid the bill directly, there would be no deduction because it was not out of pocket expense.

[mastertaxguy]

In the scenario you describe, the attorney does NOT pay the medical bills from his/her own funds: the money is held basically 'in trust' for the client. It is the client's money. Local law/procedure may dictate that from personal injury settlements (and again, the original post indicates a lack of knowledge on many aspects of this situation) be paid. Medical providers and insurance companies often get a lien against third party recoveries such as discribed. When an accountng is provided, take the deductdions that the client/taxpayer is properly entitled to such as medical expenses in the year paid.