The simplified summary here is that you don't get both the future recovery and the past medical expense tax benefit. In other words, you're reimbursed for the amount you claimed as a tax deduction, so that effectively erases your prior medical expense/tax deduction. The in the weeds discussion is about the computations given the recovery is in a future year, and then the larger issue is how to keep TAX REPORTING records for this sort of situation.
Then there is yet another issue about significance. WHAT I PERSONALLY WOULD DO: If the medical tax deduction is "small," and thus has little reduction in taxes owed, then I'd probably just not deduct the medical expenses. If the deduction is "large" and I thought there is a high probability of reimbursement, then I have decisions to make. For example, if I expected to be reimbursed in January for a December payment, then I'd probably just not take the tax deduction to avoid the record keeping. Sure I'd get some tax benefit for the first year, but then I'd have to give it back in the second year, but the tax rates might be different. Again, there is a decision that needs to be made int this situation. If I thought the probability of reimbursement is "small" and the medical expenses are "large," then this is the easy case of take the tax deduction and track the unexpected reimbursement as taxable income. The "income" here is only for tax purposes, as the payment is reimbursement for expenses from past year(s). > On 05/12/2026 3:46 AM PDT Adam H. Kerman <[email protected]> wrote: > > > Here's a bookkeeping issue I ran into that affects a 2025 tax return. I > confess that, even though the numbered schedules have been part of the Form > 1040 layout since the 2019 tax year, because they keep changing from year to > year, I am still not used to them. > > I made a reporting mistake but it doesn't affect taxes owed so I won't amend > the return unless questioned by IRS. > > There were medical expenses taken as itemized deductions in 2024. They were > reimbursed by insurance in 2025. At first, I took them as contra expenses > against the insurance premiums, but that seemed wrong, so I took them as > general contra medical expenses. > > After filing the tax return, I found discussion of "recoveries" in > Publication 525. A recovery is a return of an amount taken as a deduction or > credit in a prior year, and includes reimbursements of medical expenses. The > recovery is includeable as income to the extent to which there had been a > tax benefit in a prior tax year. For instance, if the standard deduction had > been taken in 2024, then the recovery of the medical expense isn't included > as income. > > Going forward, then, I shall not take these as contra expenses if received > in a later tax year. I'll have two separate income accounts, includeable and > excludeable, with tax-line mapping for includeable only. But I'm still > taking a reimbursement received in the same tax year as the expense as a > contra expense. > > The includeable recovery is reported as Other Income on Line 8z, Schedule 1. > > That the reimbursement gets treated differently for income tax purposes > depending upon the tax year in which it is received complicates bookkeeping, > but of course there is no choice. _______________________________________________ gnucash-user mailing list [email protected] To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user ----- Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
