Your friend Scotty informs you that he received a "tax-free" reimbursement in 2018 of some medical expenses he paid in 2017. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?
A) Scotty itemized deductions in 2017.
B) Scotty did not itemize deductions in 2017.
C) Scotty itemized deductions in 2018.
D) Scotty did not itemize deductions in 2018.
E) Scotty itemized deductions in 2018 but not in 2017.

Question

Quizplus · Accepted Answer

If Scotty did not itemize deductions in 2017, then he did not deduct the medical expenses he paid that year. As a result, the reimbursement of those medical expenses is not taxable income. If Scotty had itemized deductions in 2017, he would have received a tax benefit for the medical expenses he paid and would have to include the reimbursement in gross income. Scotty's itemization in 2018 is irrelevant to the tax treatment of the reimbursement.

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