Tax Law On Medical Reinbursment?

A 1099 usually means that the money must be reported. It does not necessarily mean that you must pay tax on it. That depends on what the money is. For example, was it a reimbursement for your medical bills (probably not taxable, unless you deducted them in a prior year) or payment for removing the website?

You could have deducted the medical expenses on your tax return for the year(s) in which you had the medical expenses. You are not allowed to deduct any medical expenses prior to 1/1/08 on the tax return that is due now. You can amend returns you already filed for years with medical expenses to deduct the medical expenses for those years (and should do so, if you did not deduct the expenses originally). If you did not file for those years, you can file for those years now. In both cases, you only receive refunds for the most recent years; it is too late to claim a refund for the earlier years.

Well the answer to your first question is yes you do have to pay taxes on the settlement. The income is most likely catergorized as Other Income or Non Employee Compenstion in box 3 or 7 of the 1099. I am also guessing that no income tax was witheld from the 50k so not only will you have to pay the tax on that but $50,000 will probably move you up a tax bracket depending on how much you make right now which means that you will be taxed about 5% more on your regular income then you normally would.

As for the medical expenses you can only deduct the ones for that year on your Schedule A. The only way to claim the rest of the expenses over the years would be to go back and ammend all of your prior year returns to show the medical expenses which I don't recommend because you will pay more accountant fees then get in a refund from the government. But you can also write off the transportion required for the medical treatments that happened in the tax year only.

In short, yes you have to pay tax income tax on the 50k and you can only deduct the medical from the current tax year.

I recommend that you talk with your accountant in more detail about your specific situation. If you have and more questions about medical expense tax law go to www.irs.gov and look up tax topic 502 medical and dental expenses and you can read the tax law for yourself.

Sorry to kinda be the bearer of bad news. Hope all of the medical expense got you well.

What was your $50k settlement for? Taking down the website or for your injury? If it was for your injury it's not taxable. In that case, your attorney should demand that they cancel the 1099 as it is not appropriate.

If the settlement was for taking down the website then it's fully taxable as ordinary income.

The working of the settlement agreement is critical here!