A company has a medical reimbursement plan for officers that covers all costs that the insurer will not pay. However, for all employees who are not officers, the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds. An officer incurred $1,500 in medical expenses and was reimbursed for that amount. An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.

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The officer received medical reimbursement for the full $1,500, which is not excluded from gross income because the plan covers all costs not paid by the insurer. The hourly worker received reimbursement for only $500, which is also not excluded as the plan requires the employee to pay the first $1,000 of medical expenses out of pocket. Therefore, only the officer must include the full amount of medical reimbursement in gross income.

A Company Has a Medical Reimbursement Plan for Officers That