Question

1099-MISC from a Pharmaceutical for Payment Assistant Program

Forum|Forum|5 years ago
July 16, 2020
1 reply
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Hi Tax experts,

I hope you can help me.

I received a 1099 MISC from a Pharmaceutical company for their Payment Assistant Program.

Typically, pharmaceutical companies have a co-pay program but Lily issued an American Express card to use for this medication. I didn't have any choice but to accept their requirements because I needed my medication.

The pharmaceutical sent me a 1099-MISC for the medicine (which is a few thousand dollars for one dose) paid from the credit card.

Do I need to include this as income? I am in the process of disputing this with the pharmaceutical company.

Thank you for your help.

SL

Not A Product Question

O

Opus 17

Employee

This is a discount or rebate on the cost of the treatment?

If a discount or rebate, it is not taxable UNLESS it is more than you paid out of pocket.

For example, suppose the drug costs $1000 per month and your insurance co-pay is $200. If the rebate is $100 per month it is not taxable, but if the rebate is $250 per month then $50 is taxable. Or, if you don't have insurance coverage and you pay $1000 out of pocket, then the rebate is not taxable unless it is more than $1000 per month.

Also, any costs paid with free money are not eligible for a tax deduction or for reimbursement from an HSA (health savings account). If you are paying $200 per month out of pocket and getting a $100 per month rebate, then you can only reimburse yourself the other $100 per month out of your HSA.

OK so, after you determine if the payment is non-taxable or partly taxable, then this is how you handle the 1099.

If nothing is taxable, leave the 1099 off your return. If part of it is taxable, add the taxable amount as "other uncommon income". Print your return and file by mail. Attach a copy of the 1099 and a letter explaining why you determined that it was not taxable income (or was only partly taxable) (because it was a rebate or discount and less than your out of pocket costs).

There is a way to e-file. Add the 1099 as taxable other income (it is not work-related and not for making profit, so it should go in as "other income".) Then create another item of "other income" that is negative in the same amount to offset the income. Call it something like (non-taxable drug company rebate). That will zero out the income. The problem with the negative offset method is that it allows you to e-file in the short term but will probably generate an IRS letter in the long run and you will eventually have to send them an explanation anyway.