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If I paid medical expenses but collected on a settlement that covered the expenses, can I still deduct them?

Forum|Forum|7 years ago
June 5, 2019
5 replies
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I was told that the money from the settlement was not taxable. It was a civil Lawsuit...?

TurboTax Deluxe Online

Best answer by MargaretL

No, you cannot deduct medical expenses for which you have been paid. Any medical expenses that have not been covered by the settlement are deductible, though.

As to the settlement itself... if your civil lawsuit is relate to physical injuries it is non-taxable. This includes awards for compensatory damages, including lost wages received as a result of the physical injury. However, punitive damages, emotional distress or mental anguish, employment discrimination or injury to reputation are generally taxable and should be reported as “other income” online 21, form 1040. For more information on Settlements and their taxability, please click here.

If your settlement is taxable, her is data entry:

Federal Taxes
Wages & Income
Scroll down to Less Common Income
Select Miscellaneous Income 1099-A, 1099-C
Scroll down to Other Taxable Income - enter a description and amount; the income will be reported on line 21, Form 1040.

MargaretLAnswer

Employee

No, you cannot deduct medical expenses for which you have been paid. Any medical expenses that have not been covered by the settlement are deductible, though.

As to the settlement itself... if your civil lawsuit is relate to physical injuries it is non-taxable. This includes awards for compensatory damages, including lost wages received as a result of the physical injury. However, punitive damages, emotional distress or mental anguish, employment discrimination or injury to reputation are generally taxable and should be reported as “other income” online 21, form 1040. For more information on Settlements and their taxability, please click here.

If your settlement is taxable, her is data entry:

Federal Taxes
Wages & Income
Scroll down to Less Common Income
Select Miscellaneous Income 1099-A, 1099-C
Scroll down to Other Taxable Income - enter a description and amount; the income will be reported on line 21, Form 1040.

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malmstorm

@MargaretL wrote:
No, you cannot deduct medical expenses for which you have been paid.

Can you elaborate on this? How did you make this determination? The IRS Publication 502 "Medical and Dental Expenses" does not explicitly state whether or not you can deduct medical expenses if you received an amount in settlement of a personal injury suit, of which part of that award was for medical expenses. The "Damages for Personal Injuries" section just discusses medical expenses deducted in a previous year and future medical expenses.

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Jenniferm0401

How does this work if you received a settlement- however, that settlement went to pay the lien of medical bills. So you personally did not gain money- the money was paid from the attorney to the medical lien.

VictoriaD75

You can only deduct medical expenses that you paid out of pocket. As a similar example, if your medical expenses are covered by insurance, they are not deductible.

Per IRS Publication 502:

You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year.

IRS Publication 502

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sundollar2

When I receive settlement, it must be income tax deductible for medicinal lines what I already paid?

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Opus 17

Employee

@sundollar2 wrote:

When I receive settlement, it must be income tax deductible for medicinal lines what I already paid?

A settlement for illness or injury is not directly taxable, but you may not claim a tax deduction for medical expenses if they were paid with non-taxed money. If you took a tax deduction and are reimbursed later tax-free, you have to repay the deduction.

For example, you were injured in 2019 and paid $50,000 of medical expenses. You claimed this as an itemized deduction on your 2019 schedule A. Because of the 7.5% income limit, your actual deduction was $20,000. In 2020, you received a settlement for your injuries in the amount of $45,000. It's not taxable income by itself, but since this is more than the $20,000 medical expenses deduction, you have to pay back that deduction. You list it as a "taxable recovery" (reimbursement of a previous tax deduction) in the Other Uncommon Income section of Turbotax.

On the other hand, suppose your medical expenses were only $5000, and you did not itemize your deductions that year. Then, your $5000 settlement is not taxable and you don't have any deduction to repay.

Any part of the settlement that is for punitive damages or interest is always taxable. Damages for pain and suffering are not taxable if the pain and suffering was due to a physical illness or injury, but pain and suffering settlements are taxable if the original injury was not physical.

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dmoncrea

If I settled a discrimination lawsuit and I was issued a check for taxable emotional distress, can I deduct the medical expenses I paid out of pocket - even if they weren't greater than 7.5% of my adjusted gross income? (I'm itemizing). For example, if my settlement was $200,000 and I added this as a 1099-M taxable income and I had 5k in medical expenses, but no other medical expenses to claim, is there a way that I can deduct the 5K? If so, how would this be done in TurboTax Premier?

macuser_22

Employee

Only if you have unreimbursed medical expenses that exceed 7.5 of your AGI then the amount that is greater then 7.5% of AGI can be an itemized deduction.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

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Mnbogboy

I have been trying off & on all day to get started filling in numbers. Is or will a form come up for me to fill?

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Knercer52

My husband received settlement but they deducted a few medical bills is that deductible from our taxes

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Opus 17

Employee

@Knercer52 wrote:

My husband received settlement but they deducted a few medical bills is that deductible from our taxes

Generally no. A legal settlement for physical injury, including medical expenses, is not considered taxable income. Therefore, you can't take any deductions, because you are paying those expenses with money that is already tax-free. If you received the cash, then paid medical bills, it's not an allowable deduction because the money was tax-free in the first place, and if the medical reimbursement was subtracted from the settlement and paid directly to the insurance company or doctor and you got the leftover funds, it's still not deductible for the same reason.