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

I was told that the money from the settlement was not taxable. It was a civil Lawsuit...?
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Level 9
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If I paid medical expenses but collected on a settlement that covered the expenses, can I still deduct them?

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:

  1. Federal Taxes
  2. Wages & Income
  3. Scroll down to Less Common Income
  4. Select Miscellaneous Income 1099-A, 1099-C
  5. 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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Level 9
Intuit Approved!

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

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:

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

View solution in original post

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Level 1

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


@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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Employee Tax Expert

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

@malmstorm If you have been reimbursed for medical expenses through a settlement for personal injury, then there is not a medical expense to deduct. Expenses are recovered in this case. There is no deduction to take because there is no expense.

 

See this link for more details.

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New Member

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

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.

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Expert Alumni

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

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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Returning Member

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

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

 

 

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Level 15

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


@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. 

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
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