Your friend Scotty informs you that he received a "tax-free" reimbursement in 2016 of some medical expenses he paid in 2015.Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?
A)Scotty itemized deductions in 2015.
B)Scotty did not itemize deductions in 2015.
C)Scotty itemized deductions in 2016.
D)Scotty did not itemize deductions in 2016.
E)Scotty itemized deductions in 2016 but not in 2015.

Question

Quizplus · Accepted Answer

When medical expenses are paid for with after-tax dollars, they may be an itemized deduction on Schedule A of Form 1040. However, if the taxpayer receives a reimbursement for those expenses, it is not included in income if the taxpayer did not take a tax deduction for the expenses in the previous year. Since Scotty did not itemize deductions in 2015, he is not required to report the reimbursement as income in 2016.

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