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                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, April 5, 1993                   TAG: 9304020465
SECTION: MONEY                    PAGE: 6   EDITION: METRO 
SOURCE: Knight-Ridder/Tribune
DATELINE:                                 LENGTH: Short

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MEDICAL REFUND A TAXING PROBLEM

Q: Last March, I received $3,800 as a partial reimbursement from my medical insurance company for a very large 1991 hospital bill. I've called the IRS and a local accountant, trying to figure out how to handle this reimbursement on my tax return. The IRS says that the entire $3,800 must be shown as income, while the accountant says I only have to report a lesser amount. Please help me clarify this.

A: The manner in which you report the 1992 medical reimbursement depends on the amount of deduction you claimed on your 1991 tax return. If you were able to deduct at least $3,800 of medical expenses in 1991, you will have to report the entire reimbursement as income on your 1992 tax return. In contrast, if you did not itemize in 1991, or if you did not claim a medical deduction, the 1992 reimbursement will be tax free. However, the reimbursement will only be partly taxable if your 1991 medical deduction was less than $3,800.

For example: If you incurred $5,400 of medical expenses in 1991, but because of various tax restrictions were only able to claim a $1,600 deduction. In 1992, you receive a $3,800 reimbursement from medical insurance. Since you deducted $1,600 in 1991, only $1,600 of your 1992 reimbursement will be taxable. The remaining portion of the reimbursement will be tax free.

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