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dgorum
New Member

I received a settlement from an insurance company from which I paid a large medical bill. Can I deduct that cost?

 
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MichaelMc
New Member

I received a settlement from an insurance company from which I paid a large medical bill. Can I deduct that cost?

Generally, settlements received due to personal injury or personal sickness are fully excludable from taxable income. Since the income is not taxable, there can be no tax deduction for medical payments made from the proceeds of the settlement, as that would result in a double benefit.

Care should be taken with regard to any medical expenses related to the settlement that you may have paid and deducted from prior years' tax returns. The portion of your settlement that reimburses you for the tax benefit resulting from such prior tax deductions would be treated as taxable income in the year received.

For more details, please see IRS Pub. 4345 Settlements - Taxability.

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