Deductions & credits

Gifts are not taxable income.  If you receive a 1099-K for the money, there are two ways to handle it.

 

1. Enter it as "other income."  The create a second item of "other income" with a negative dollar amount to offset the income, call it something like "offset for non-taxable gifts."  This will allow you to e-file, but the IRS may send you a letter asking for more information.

 

2. Leave the 1099-K off your return.  Print your return and file by mail.  Attach a copy of the 1099-K and a written explanation (but don't attach detailed proof).  This is the IRS recommended method, but because the IRS is so backlogged, I would probably choose method 1.

 

Keep proof that these were free will gifts (with nothing offered in return) for at least 3 years in case of audit.

 

And, since you paid these medical expenses with tax-free money, you can't list the expenses as a medical expense deduction.