Your friend Scotty informs you that he received a "tax-free" reimbursement in 2015 of some medical expenses he paid in 2014.Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?
A)Scotty itemized deductions in 2014.
B)Scotty did not itemize deductions in 2014.
C)Scotty itemized deductions in 2015.
D)Scotty did not itemize deductions in 2015.
E)Scotty itemized deductions in 2015 but not in 2014.

Question

Quizplus · Accepted Answer

To qualify for tax-free treatment of a medical reimbursement or a distribution from a health savings account, the taxpayer is required to substantiate that the reimbursement or distribution was used to pay for qualified medical expenses. However, the taxpayer does not have to itemize deductions to exclude the reimbursement or distribution from income. Therefore, the fact that Scotty did not itemize deductions in 2014 is the best explanation for why he is not required to report the reimbursement in gross income.

Your Friend Scotty Informs You That He Received a "Tax-Free