on cancer insurance
I purchased a cancer policy about 20 years ago, which I have been
paying for. I am about to file a claim against it for what looks
like a substantial amount. Do I have to pay taxes on this money?
Thanks! -- Diana
Sorry to hear that you need to cash in on the policy, but I hope
that all works out for the best.
Payments received under health and accident plans
generally are not taxable unless they were paid under an employer-maintained
plan. Since your policy seems to be that of personal insurance,
you would not have to include your claim for compensation as income
on your tax return.
If your employer paid the premiums but you had to
include them in income as additional compensation, the proceeds
would still not be taxable to you. If you paid part of the premium,
or had to pick up part as income, and your employer paid the other
part, then that employer-paid portion of the proceeds would be taxable
For example, if you and your employer each paid half
of the premiums, then half of the claim would be taxable. In addition,
any reimbursement for actual medical expenses, such as drugs, hospital
services and physician charges, would reduce the amount that you
would be able to claim as a medical expense deduction on schedule
If the reimbursement relates to medical expenses
that you had deducted in prior years, in which you received a "tax
benefit," you would report the reimbursement as miscellaneous income.
That's because you received a tax benefit to the extent that the
deduction reduced your tax for the year.
To figure out if you received a tax benefit, you would
compute the prior year's tax return with and without the reimbursed
deduction. Page 19 of Publication
525 provides more information on taxable recoveries and page
14 of the same publication discusses sickness and injury benefits.