Where do i report income from a cancer insurance policy

[cyentsch]

Do I have to claim income on a supplemental cancer insurance policy if I received payment

[denham52264]

What if the premiums for my cancer insurance were deducted from my paycheck pre-tax?  Would I still not have to claim the benefit amount I received upon diagnosis??

[IsabellaG]

If you were covered by a plan in which your premiums were not subject to tax, your benefits are taxable.

[denham52264]

My Cancer Insurance carrier, American Fidelity, told me it made no difference as to whether or not the premiums were paid pre-tax or after.  For instance, up to the point of my diagnosis my premiums were taken out of my paycheck and sent to American Fidelity by our Payroll Department pre-tax.  After I was diagnosed I was dropped from the policy, but kept it for my husband and children.  I asked the American Fidelity rep today if my husband were now diagnosed would the benefit be reported as misc income on a 1099 and she said yes because they treat these insurance policies as 125 plans.  So, regardless of whether the premiums came out of my pay before tax, or now after tax, they would report the monies exactly the same on a 1099.  This really doesn't seem fair at all.  IRS Publication 525 says that if I pay the premium (no mention of whether it is with before or after taxes), the benefit is not taxable!

[IsabellaG]

Please see page 17 of Publication 525, under cafeteria plans: . In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. If the amount of
the premiums was included in your income, you are considered to have paid the premiums and any benefits you receive are not taxable. <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p525.pdf">https://www.irs.gov/pub/irs-pdf/p525.pdf</a>

[IsabellaG]

If you paid the premiums on the policy, the benefits are not taxable because they are considered a form of health/disability insurance. You wouldn't have to report them.

[denham52264]

What if the premiums paid were taken out of my paycheck pre-tax?

[denham52264]

What if the premiums were taken out of my paycheck before taxes?

[denham52264]

I did pay the premium, it was taken out of my paycheck pre-tax.  I did get a 1099 from American Fidelity yesterday reporting the benefit as misc income so now I am forced to report it and will be charged taxes on the $50,000.  I called American Fidelity and they said they treat this cancer insurance as a 125 so it is taxable.  When I was dropped from the plan I kept my husband and daughters on it and now pay them directly with after-tax money and when I asked her if one of them were to be diagnosed would I still get a 1099 showing it as misc income she said yes, it doesn't make a difference.  Even when I told her that IRS Publication 525 says that if I paid the premiums the benefit wouldn't be taxable she was insistent that it was taxable.

[IsabellaG]

The IRS says that if you paid the premiums with after-tax dollars, the benefits are not taxable to you. If you get a 1099 for payments that you know aren't taxable, I would report the income as shown on the 1099, and then take a deduction for the same amount on line 21 of your tax return, describing the income as not taxable. You'd report that as a negative amount in Miscellaneous Income.

[MuseMamaATX]

So you were covered by a cancer plan that dropped you when you go cancer? I am trying to understand. Sorry!