Last summer I got a letter from my health insurance that I might be eligible for a cash benefit -- my cancer diagnosis of a year earlier was made about a month after this new provision went into effect. Well, at the beginning of the January, it came through -- a $5000 check! Woo hoo!! It was very welcome, offsetting moving expenses and taxes for this year. I threw most of that sucker into moving depleted savings the day it hit the mailbox.
But yesterday I finally found the answer to the burning question -- is it taxable? Yes. So I guess tomorrow I'll have to call the IRS (we all know how much fun THOSE calls are) and find out if I need to pay the taxes on it up front or if I can have extra withheld from my job throughout the year. Either way, I'm still way ahead, but . It's hard to love taxes.
Congratulations on the benefit, though sorry you were eligible due to the diagnosis. Don't forget to get the name of the person you talked to at the IRS and document the date and time you called. The rules change yearly and not everyone is on the same page for things like that. Blessings.
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I would think it depends how the insurance company puts it, if it is a refund of overpayment then maybe you can get out of tax.
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I looked it up on the insurance site -- it's taxable and they send out a 1099 for it.
I can't really be annoyed - the insurance was very good and I was out hardly anything out-of-pocket through the whole six months of appalling medical bills, so it really is, in my case at least, income. I was very lucky from start to finish, but my experience of seeing those bills is one of the things that makes me think health care for everyone has to be a very high national priority. If I had still been at the job I had before this one, I would be bankrupt today. So the taxes are just a whimper. I really am very grateful.
If you just got the check this month, then about this time next year the insurance company will send you a 1099 for it. So next year when you do your taxes this amount will be added in as additional income on your 1040, just like would be done with the 1099 you should get from your bank for the interest you earn on your savings account. This will make your adjustable gross income higher. If you generally make the same amount of money you can figure out how this will effect next years taxes. An easy way to do this would be go to HR block website, put in this years income, plus the $5000, your # of dependents etc, and how much you paid in taxes from your paycheck. If it comes up saying you will then you should consider adjusting your witholdings so you have more taxes taken out this year to cover the tax bill, or adjust your budget to pay the taxes next spring.
CYork - Just before the diagnosis, the facility where I work apparently negotiated with the insurance company that for certain critical illness dianoses (internal cancer, heart attack, stroke, and one or two others), there would be a $5000 cash benefit, if, I think, the deductible was met. Also the facility puts a lump sum in a patient account at the beginning of the fishcal year that covers part of the deductible. Any not used is rolled over, and I had very few health costs before this, so I had accumulated enough in that account to cover the deductible - which is why I was out of pocket so little. And thanks for your good wishes. At my checkups the doc keeps telling me I'm "perfect" - the only one the history of the universe who has thought so!
ust peachy 92 - that is the issue now - how the taxes due will be paid. The IRS today was not very helpful, so I'll try again another day, may try to make an appointment to go by the office here, but this is a bad time of year to do that. I may have to make estimated tax payments, or may be able to have additional withheld. There are apparently a lot of conditions surrounding it - of course, this is tax law we're looking at! If I guess wrong, I get hit with penalties. The IRS guy on the phone thought I would probably have to do estimated tax, but maybe not. Agggghhhh. If they don't know, who does?? So I'm still working on that part.
I don't know the forms right off, but with money received from insurance there are forms that you do that determines if an additional tax is due on them, and I think with figuring that out it depends on if the amount was higher than the amount paid for deductibles. And somehow it must be determined if the money gets claimed as taxable dividened or just goes on the return in the other income category. With the tax amount I think it is determining if that income needs to be handled like self-employment funds. If this money is getting claimed on your 2008 tax return, to pay the tax on it you could estimate the tax and pay it now, adjust witholdings and hope it covers it, or be prepared to pay it with your return next April. If you can't pay the tax in April, there is the option to set up a payment plan when you file the return and that is when you will get with penalties.
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Good news, bad news department
. It's hard to love taxes.
Blessings.
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