Your friend Scotty informs you that he received a "tax-free" reimbursement in 2011 of some medical expenses he paid in 2010.Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?

Question

Quizplus · Accepted Answer

If Scotty did not itemize deductions in 2010, he does not need to report the reimbursement in gross income. If he had itemized deductions, he would have deducted the medical expenses on his tax return, and the reimbursement would need to be reported as income to prevent a double tax benefit. However, if he did not itemize, he did not receive any tax benefit from the deduction, so the reimbursement does not need to be reported as income. The fact that Scotty itemized deductions in 2011 is irrelevant to this situation.

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