Your friend Scotty informs you that he received a "tax-free" reimbursement in 2012 of some medical expenses he paid in 2011.Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?
A)Scotty itemized deductions in 2011.
B)Scotty did not itemize deductions in 2011.
C)Scotty itemized deductions in 2012.
D)Scotty did not itemize deductions in 2012.
E)Scotty itemized deductions in 2012 but not in 2011.

Question

Quizplus · Accepted Answer

If Scotty did not itemize deductions in 2011, then he did not claim the medical expenses he paid in that year as a deduction on his tax return. Therefore, the tax-free reimbursement he received in 2012 for those expenses does not have to be reported as income. If he had itemized deductions in 2011, he would have already received a tax benefit for those medical expenses and therefore the reimbursement would have to be reported as income in 2012. The fact that he itemized deductions in 2012 or not is irrelevant.

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