Your friend Scotty informs you that he received a "tax-free" reimbursement in 2017 of some medical expenses he paid in 2016. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?
A)Scotty itemized deductions in 2016.
B)Scotty did not itemize deductions in 2016.
C)Scotty itemized deductions in 2017.
D)Scotty did not itemize deductions in 2017.
E)Scotty itemized deductions in 2017 but not in 2016.

Question

Quizplus · Accepted Answer

If Scotty did not itemize deductions in 2016, he cannot take a deduction for medical expenses paid during that year. Therefore, he does not need to report the reimbursement as income. If he did itemize deductions in 2016, he would have taken a deduction for the medical expenses, and the reimbursement would need to be reported as income in 2017.

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